Corinthian Colleges Inc.’s shares surged and call-option trading jumped to the highest since January 2006 on speculation the for-profit university will be acquired.
The shares rallied 11 percent, the most since May 17, to $5.44 at 4 p.m. New York time. Trading of options to buy Corinthian shares jumped to 24,918 contracts, almost five times the four-week average.
“The stock’s responding to headlines about takeover speculation,” said William Nichols, co-head of U.S. equities at Cantor Fitzgerald LP in New York. “That’s why the stock rallied.”
For-profit education companies have been under pressure as the U.S. Congress and President Barack Obama’s administration propose new limits on student aid. An index of 12 education stocks has lost 31 percent this year. It rose 2 percent today.
Senator Dick Durbin, a Democrat from Illinois, said last week that legislative action was needed to prevent schools’ profiting from federal aid while its graduates fail to earn enough to pay off their student loans. For-profit universities get as much as 90 percent of their revenue from federal funding, according to Durbin.
‘Putting Some Faith’
The most-active Corinthian option contracts were September $6 calls, which tripled to 15 cents and accounted for one-quarter of total call trading.
“Option traders are putting some faith in the rumor and building their upside bets,” said Joe Kunkle, founder of OptionsHawk.com, a Boston-based provider of options market data and analytics. “People started snapping up calls.”
Implied volatility, the key gauge of option prices, for at-the-money options expiring in 30 days increased 11 percent to 86.32.
“We don’t comment on market rumors and speculation,” Kent Jenkins, a spokesman for Corinthian Colleges, said in a telephone interview.
The Washington Post Co., which got about 58 percent of its 2009 revenue of $4.57 billion from education, owns about 7.8 percent of Corinthian Colleges, according to Bloomberg data. Rima Calderon, a spokeswoman for the Washington Post Co., declined to comment on the takeover speculation.