Alcoa Inc. (AA) advanced amid record bullish options volume on speculation Rio Tinto Group will make a takeover offer for the largest U.S. aluminum producer.
Alcoa climbed 45 cents, or 2.6 percent, to $17.67 at 4:15 p.m. in New York Stock Exchange composite trading, giving it a market value of $18.8 billion. More than 360,000 calls to buy the stock changed hands, eight times the four-week average and the fourth-largest call volume on U.S. exchanges, according to data compiled by Bloomberg.
Mark Kelly, an analyst at Olivetree Securities in London, said he was skeptical about “unsubstantiated” speculation today that Rio has secured a syndicated loan it may use to make a bid for Alcoa for $25.50 a share. Rio has “generally been happy” to focus on smaller purchases, such as Australian coal miner Riversdale Mining Ltd. (RIV), Kelly said today in a report.
“Rio shareholder feedback to us has been that they vastly prefer the company to pursue this path than try to go back to the days of large levered acquisitions,” Kelly said. “It would be a surprise to see such a move.”
Rio, the world’s third-largest mining company, paid $38.1 billion in 2007 for Canadian aluminum producer Alcan Inc., the industry’s largest acquisition. That deal left Rio with almost $40 billion of debt as it headed into the global financial crisis, forcing it to undertake a $15.2 billion rights offer in 2009.
Tony Shaffer, a London-based spokesman for Rio, and Michael Belwood, a spokesman for New York-based Alcoa, said separately that their companies don’t comment on market speculation.
“Rumors that Rio Tinto could make a $25.50-a-share bid for the U.S. company spurred speculators to the options market,” Caitlin Duffy, an equity-options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., wrote in a note today. “Both Rio Tinto and Alcoa are mum on the subject of takeover talks as of now, but investors are making a lot of noise in options land.”
Alcoa’s most-active options were May $18 calls, which more than tripled to 47 cents and accounted for about a sixth of all call trades. The next-biggest volume was in the May $20 calls, which rose sixfold. Both contracts traded about 58,000 times, compared with an open interest of 46,024 for the $18 calls and 12,514 for the $20 calls before today. Today’s volume for puts to sell the stock was 89,013 contracts.
Alcoa’s implied volatility, the key gauge of option prices, for at-the-money options expiring in 30 days surged by more than a third to 38.79, the highest in six weeks.