When my son had a huge boil under his arm, it turned out that it was filled with the killer staph, MRSA. It also turns out that my (otherwise) great doctor used a traditional lab to process the test, which took a week to determine it was MRSA.

Cepheid (NASDAQ: CPHD) manufactures the equipment and test that takes just two hours to do the same thing -- and is better and cheaper than traditional tests. CPHD wins 90%-plus of all competitive bids and its test could be available in low-tech facilities, such as doctor's offices or nursing homes, next year.

The big catalyst for this stock, however, is that Medicare will stop paying for all hospital-acquired infections except MRSA in October. So institutions need a quick test if they are going to be reimbursed for treatment.

The stock has fallen from $30 to under $9. It's worth $20 - $22 to an acquirer.

Your best strategy for life-changing profits?

Buy the call options.

Next: Biotech Stock #4

Last week Bank of America (NYSE: BAC) bought Countrywide Financial (NYSE: CFC). The deal benefits Bank of America in that it gets a big chunk of the US mortgage market and a nice tax write-off, while Countrywide gets saved from a deep mortgage mess and pending liquidity crisis.

What is interesting to options traders though is the option activity that happened in the days before the deal. The deal was widely reported on Friday 1/11/08. But the stock options tell a slightly different story. It appears as if there are some who got wind of this deal a little early.

Call options allow an investor to take on a levered position in the stock and make huge gains if the stock appreciates. In the days before the buyout the call options were extremely active and this is typical of insider trading on the news. If you look at the number of options trading on the day before the announcement and the number that were trading several days earlier, it is very apparent that some traders had wind that something was up. On 1/10/08, the day before the announcement 195,000 January call contracts traded hands. If you compare that to the volume of three days earlier there were only 13,000 January calls traded. That is a 14 fold increase in the daily number of January contracts trading.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about. Mr Kersten does not own or control BAC or CFC positions at the time of this writing.

Earlier today I noted some options buying in Time Warner, Inc. (NYSE: TWX) DEC $20 calls and how the price of the stock has been stable because of a general lack of sellers. At the time we were just on track for another day of average volume and a slight uptick.

Then the 11:30 AM buying frenzy came. We started seeing big volume and a lot seem to be block purchases. At 3:22 PM EST the stock has traded north of 33.3 million shares, well above the 25.5 million shares on an average trading day. Now the shares are up 2.1% at $20.40. While the high on the day was $20.52, this will be another recent new high close, barring anything unexpected. The previous 52-week high was $20.13.

We also saw more options activity in the name too. The December $20 calls have now traded more than 14,000 contracts -- and that 10,000 contract buyer I wrote about earlier today is actually up almost 50% since this morning! The purchases were for $0.45 earlier and the last print seen was $0.65. Even the JAN 07 $22.50 calls saw more than 17,700 contracts trade and almost all were speculative buys more likely than not. This volume also is far too much and at too close of a time to be attributed only to options activity the day before expiration.

Could this be short covering? It is possible, but honestly most short covering goes into an event or ahead of an event. This generally looks like block buying to me.

We'll have to see if any additional stealth news comes out of if there are any upgrades that would have accounted for the sudden trading volume and options volume. So far this will be another near-term high in the stock.

Time Warner Inc. (NYSE: TWX) is usually a name that has thin volume in the stock option contract trading each day. I have previously noted at how the stock options could become even more thinly traded if the stock stays over $20 because the options strike prices will only be in every $2.50 increment instead of the $1.00 increments we have been used to for nearly 5-years. The reason for this is that the stock would have to move more than 10% to reach the next strike level instead of 5.5% or 6% as it has previously.

Today there was a 10,000 contract purchase for the December $20 Call options at a price of $0.45. 10,000 option contracts is the same as 1,000,000 shares of common stock on a fully leveraged basis. Usually an options trade like this is more speculative, but it is possible that this is a hedge for a large short-selling position. If we assume that it IS a speculative trade, the stock has to go to $20.45 or higher before December 15, 2006 for that speculative trade to go "in the money." This is most likely a speculative trade, and it probably revolves around the upcoming IPO of Time Warner Cable more than on AOL getting a new boss. The DEC $20 Calls had open interest of 18,529 as of yesterday, so now it looks like the open interest is climbing.

Shares of TWX are now up 2.45% at $20.47 on the day and TWX now has a market cap above the $80 billion mark. The stock's trading volume for each of the last four trading sessions has been under the recent daily average volume, yet the stock has not rolled over. It looks like there is still a general sellers strike where long-term investors are staying with their bets and beliefs that the TWX shares are going higher. Carl Icahn's recent disclosures of a slightly higher stake in TWX may at least signal some of that.