Worried about lower interest rates being a bad sign for the economy?  Shift the focus to who benefits in a lower interest rate environment.  The US 30 year Treasury Bond yield recently dropped to a new low of 2.13%.  This is lower than levels reached during the 2008 financial crisis.  Companies can take advantage of these ultra-low rates by issuing new debt to finance deals or takeovers. 

Did we begin to see this take shape?

Last week, there were plenty of rumors swirling regarding M &A.  Speculative option call buying can sometimes provide a signal of where institutions may think the next target may lie.  Option call activity exploded in several buyout targets.  Last Thursday, the Hershey Company (HSY) gained 16.8% on fresh buyout speculation from Mondelez International Inc. (MDLZ).  HSY saw nearly 6x its average daily volume (ADV) in options on Thursday.  Further, on Friday, Harley-Davidson, Inc. (HOG) climbed +19.8% on buyout interest.  Its shares saw 29x its ADV in options trade.  Possible deals in both these companies may have been in the works for months, but with interest rates continuing to fall, further deal activity may be on the horizon. 

Call volume increased in several other companies that may also be ripe for the picking.  Last Thursday, option volume exploded in Kellogg Company (K) with 22k calls vs 3k puts trade, representing 4x its ADV.  Similarly, FireEye, Inc. (FEYE) saw 3x its ADV in option trades with 34k calls vs 4k puts trade.  Other companies that saw higher than normal call volume last week were Kate Spade & Company (KATE) which traded 15x its ADV in option volume last Monday and Splunk Inc (SPLK) which also saw increased option volume.  Lastly, Danone is said to be near a purchase of WhiteWave at a $10B value.

Now, many times option call volume can be just that, speculative.  However, with first quarter GDP at a lackluster 1.1%, companies may take advantage of record lower rates to consolidate in this lower growth environment.  Keep an eye on large call volume in small to mid-cap quality companies for further clues of M&A speculation. 

–          Christian Fromhertz, CEO of The Tribeca Trade Group

Follow @cfromhertz on twitter for the latest trends in ETFs and Equity Options.