Varian Medical Systems draws well-timed option bets

(Reuters) – Bullish options on Varian Medical (NYSE:VAR) stock saw unusually heavy buying on Thursday before the shares spiked on an unsubstantiated report that GE Healthcare (NYSE:GE) could be in talks with the medical devices company about a possible takeover.

Varian Medical Systems shares rose 10% to a record high of $106.69 after Spanish-language website Intereconomia reported the talks. Varian Medical Systems and General Electric declined to comment on the story.

Roughly 2,100 Varian Medical Systems call contracts betting on the shares rising above $100 by Friday changed hands by 12 p.m. ET (1600 GMT), with volume over three hours exceeding the past month’s total volume.

Call options give the right to buy shares at a fixed price at a future date and provide a relatively cheap way to profit from a rally in shares.

The options, which traded in small lots of a few contracts each, had an average price of 47 cents. The contracts rose as high as $6.50 and last changed hands for $1.20, according to Thomson Reuters data.

The timing of the trades, just hours before the report, and the unusual trading volume, makes the trades appear suspicious, Fred Ruffy, analyst at options analytics firm Trade Alert said.

The use of very short-term calls that expire on Friday with a strike price just above the share price also makes the trades suspicious he said.

Options activity has been known to spike before the public announcement of deals, and the U.S. Securities and Exchange Commission has in the past announced enforcement action for alleged insider trading involving options.

The U.S. Securities and Exchange Commission did not immediately respond to a request for comment.

Varian Medical Systems shares gave up gave up most of their gains to close up 3.5% at $100.29. GE shares closed nearly unchanged at $29.07.

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