Tesoro Moves Up on Takeover Speculation

Tesoro Corporation (TSO) shares began the week on a positive note after renewed takeover chatter sent the stock higher. Some 81,048 call options changed hands, which is more than 7x the average daily volume of 11,419 contracts. The majority of the action could be seen in the September $20 strike, which saw their implied volatility rise from an average of 67 to 95. The move follows similar activity seen back on September 4th when takeover speculation surfaced.

Refiners like Tesoro have been beaten down to their lowest levels in years as higher oil prices have put pressure on margins. In fact, many refiners are trading at unprecedented earnings multiples of 4 to 5 times, assuming that earnings are as low as analysts are expecting. Tesoro is a big name in California and Hawaii - large markets in the United States - and is trading at these levels, which has many believing that it could be a takeover candidate.

Others are attributing the move to a broader recovery in the refining sector. Lower crude oil prices equate to better profit margins while the prospects of an improving economy mean that demand could be on the rise. Companies like Western Refining rose nearly 9% on Monday while Sunoco and Fronteir Oil Corporation also saw moves to the upside. The key difference and cause for speculation was the increased options activity surround the company.

Frontier Oil Corporation is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. Company company operates refineries in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of about 162,000 barrels per day. This crude oil is marketed throughout the Eastern slopes of the Rocky Mountain region. Unfortunately, higher oil prices caused shares to be cut in half from nearly $50 to just over $20 per share.

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