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Trader May Have 267% Option Payday on Bid for Temple-Inland

A trader’s bullish bet on Temple-Inland Inc. pushed volume in the paper producer’s options to a three-month high on May 25, and now it’s paying off almost threefold after International Paper Co.’s hostile takeover bid.

Volume for calls to buy Temple-Inland rose to 13,076 contracts that day, 26 times the four-week average and 654 times the number of puts to sell. Almost all the volume was in a spread by an investor who bought 6,425 January $25 calls while selling the same number of January $30 calls to win a paper gain of $1.54 million today, according to a report today from Ophir Gottlieb, managing director of client services at Livevol Inc., a San Francisco-based provider of options market analytics.

“Any time we see an unusually large directional trade that immediately precedes a deal you have to wonder what drove the customer to pull the trigger,” said Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics. “It definitely worked out incredibly well.”

Temple-Inland surged 40 percent to $29.49 at 4 p.m. in New York for a record advance after International Paper, the world’s largest pulp-and-paper maker, offered $30.60 a share to increase its stake of the North American market for containerboard used in shipping boxes. The buyer paid 90 cents per contract for the spread, which is now worth about $3.30, Gottlieb wrote.

Chris Mathis, a spokesman for Austin, Texas-based Temple-Inland, didn’t immediately return a call from Bloomberg for comment. Thomas Ryan, a spokesman for Memphis, Tennessee-based International Paper, declined to comment. John Nester, a spokesman for the Securities and Exchange Commission, declined to comment.

Takeover speculation has boosted Temple’s shares and options in the past, including as long ago as May 2008. The Wall Street Journal’s Heard on the Street column said that Temple was a potential takeover target on Oct. 25.

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