This article was originally published in The Option Strategist Newsletter Volume 3, No. 10 on May 27, 1994.
We have, in the past, often written about the fact that options can be used to help spot "hot" stocks, such as potential takeover candidates. Option premiums tend to inflate and/or option volume tends to increase prior to a major fundamental news event concerning the stock. The reason for this, of course, is that "insiders" — those who have prior knowledge of the news, or at least have a very educated guess — buy options because of the tremendous leverage available from the profitable purchase of an option.
