Nov. 2 (Bloomberg) -- Trading in bullish Encore Acquisition Co. options jumped to a 17-month high before Denbury Resources Inc. said it would buy the oil and natural-gas producer for $4.5 billion.

More than 3,300 Encore calls changed hands on Oct. 27, the most since May 2008 and 21 times higher than the four-week average. The most-active contracts were those giving the right to buy Encore shares for $45 through Dec. 18. Volume was six times greater than the last four times the company reported quarterly results. Denbury agreed to pay $50 a share for Encore, according to a statement yesterday.

Call options, or derivatives that convey the right to buy stock for a given price by a certain date, often return more to investors speculating on takeover targets. The U.S. Securities and Exchange Commission polices the options market to ensure investors aren’t engaging in insider trading.

“If there was anything funky going on, I’m sure the regulators will catch up to whoever was buying those calls pretty quickly,” said Peter Bottini, executive vice president of trading at OptionsXpress Holdings Inc., a Chicago-based online brokerage. “There’s a pretty clean trail back to the buyer.”

Laurie Burkes, a spokeswoman for Denbury, declined to comment. Bob Reeves, Encore’s chief financial officer, and spokeswoman Kim Weimer didn’t respond to voicemail messages and e-mails seeking comment. John Nestor, an SEC spokesman, declined to comment.

Beating the Market

December $45 calls linked to Encore’s stock closed at 70 cents last week, down from a June peak of $3.40. Encore shares rose 45 percent to $37.07 before today in 2009. Denbury gained 34 percent, compared with the 15 percent advance in the Standard & Poor’s 500 Index, the benchmark measure of U.S. stocks.

The December $45 calls were today’s most-traded Encore contracts, with 6,530 changing hands. They rose 107 percent to $1.45 for the third-biggest gain.

The Encore acquisition, which includes the assumption of debt, will double oil reserves for Plano, Texas-based Denbury, a specialist in extracting crude from mature fields. Denbury said it would postpone its third-quarter earnings release and conference call because of the deal, which will allow Denbury to undertake larger projects using carbon dioxide to get oil in a process known as enhanced oil recovery.

Carbon Dioxide

“With the addition of the Encore properties, we more than double our current inventory of oil reserves recoverable with carbon dioxide, and greatly expand our future growth potential with a second new core EOR area in the Rockies,” Phil Rykhoek, Denbury’s chief executive officer, said in the statement. The combined companies will have total reserves of more than 500 million barrels of oil equivalent, he said.

Denbury is the biggest oil and gas operator in Mississippi and has Barnett shale natural-gas assets in Texas, according to the company’s Web site. Encore has operates oil and natural gas projects in the Rockies, Mid-Continent and Permian basins. The combined company will be known as Denbury Resources Inc.

Encore reported a third-quarter loss of 11 cents a share after U.S. markets closed on Oct. 27, missing the average analyst estimate that called for a loss of 1 cent. The stock dropped 7.1 percent the next day, the most since Sept. 9, while the December $45 calls fell 67 percent.

Call trading volume of 3,338 contracts on Oct. 27 was six times higher than the average in the last trading session before Encore’s four prior quarterly reports.

Dell’s Perot Bid

The SEC sued an employee at former presidential candidate H. Ross Perot’s investment adviser in September for buying options with advance knowledge of Dell Inc.’s $3.9 billion bid for Perot Systems Corp.

In the Perot case, the SEC filed a lawsuit against Reza Saleh two days after Dell’s acquisition was announced. He allegedly reaped an $8.6 million profit buying call options less than three weeks before Dell’s biggest-ever deal, according to the regulator. Saleh worked at Parkcentral Capital Management LP and Perot Investments, which have affiliations and share space with Perot Systems, giving him access to information about the company, the SEC said.

JPMorgan Chase & Co., based in New York, was Denbury’s banker in the negotiations, while London-based Barclays Plc worked with Encore, according to a statement yesterday. Baker & Hostetler LLP was Denbury’s legal counsel, and Baker Botts LLP was Encore’s.

Stockholders of Fort Worth, Texas-based Encore, which has reserves from Montana to Texas, will receive $15 in cash and $35 in Denbury common stock, according to the deal announcement yesterday.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

Last Updated: November 2, 2009 16:08 EST