HP, Compaq Options Surge Investigated

The Chicago Board Options Exchange is investigating a surge in options trading before Hewlett-Packard Co. announced its deal to acquire Compaq Computer Corp.

The investigation covers trading in options to buy both HP and Compaq shares, CBOE spokeswoman Lynn Howard said.

Options give an investor the right to buy or sell a stock at a set price by a set date. They are a low-cost way to make big bets on share price moves--and thus have been used over the years by some investors trading illegally on inside information.

Friday, when shares of HP closed at $23.21, investors traded 3,335 option contracts that let them buy HP shares for $22.50 each before Sept. 22. That was more than 100 times the average daily volume for that contract before Friday.

Last Thursday and Friday, investors traded 4,642 option contracts that carry the right to buy Compaq stock for $15 a share through the third week in September. That volume too was far above average.

So far, however, the options purchases look like bad bets: HP shares plunged $4.34 to $18.87 Tuesday while Compaq slumped $1.27 to $11.08.