Discretion is the better part of valor -- that's what I was always taught. Perhaps the time for a strategic withdrawal has come in the battle of Microsoft Corp. (NASDAQ: MSFT) vs Yahoo Inc. (NASDAQ: YHOO). Somehow, though, I can't imagine it will take that turn, as I read the analysts, strategists and pundits. How could it have become so adversarial? Surely something ugly may be at hand.

Did Steve Ballmer envision this type of scenario when launching his original bid for Yahoo? Did he ever imagine the attempted synergy would become a battle of wills as much as money? To what degree does pride factor into this pending recipe for disaster? I dare say that is what it has all come down to now. Pride goes before a fall, they say.

Does Steve Ballmer have the grace within him to fold his tents and quietly withdraw? Or shall his siege works be lain against the walls of Yahoo in an attempt to forcibly take it? Already he has warned that he will appeal to the sensibilities of Yahoo's investor rank and file. It's a tactic which has been used in many a war. However, attempting to romance the populace away from their leaders seldom, if ever, has worked. In the meantime, Microsoft's own shares are on the decline, diluting the strength of its acceptable offer.

I submit to you that at this time Microsoft should disengage from the situation entirely. Giving Yahoo some time to fully digest the reality of what it is facing might be a worthwhile strategy. To force the matter any further right now may only lead to the degradation of the reputations of both companies. That is something that no one desires.

The powerful silence emanating from an adversary which has quietly withdrawn places nothing but unanswerable questions on the horizon.

Gary Sattler is a freelance blogger. He does not knowingly have interest in the companies mentioned in this blog post.

With today's rumors of Bank of America Corporation (NYSE: BAC) in talks to buy Countrywide Financial Corporation (NYSE: CFC), here are two more stocks that have gotten crushed, which may be targeted as M&A candidates. Here are 2 financial stocks that I think have a fairly good chance of getting taken over by the end of '08.

E Trade Financial Corporation (NASDAQ: ETFC), the online brokerage, has lost investors tons of money. The company is shedding non-core divisions and getting back to basics. Etrade usually is involved in rumors of either joining or buying TD Ameritrade Holding Corporation Corp. (NASDAQ: AMTD), and I think that we are going to see some movement in terms of selling the online brokerage firm. At just around $4/share, these stocks are beginning to look interesting again.

Washington Mutual, Inc. (NYSE: WM) has seen its stock drop by some 75% over the last year. The stock is trading with a PE of a bit more the 4, and has a dividend yield over 17%. Now I would guess that most analysts believe the dividend is going to be cut. I wouldn't be at all surprised to see a foreign bank that wants to get a big foothold in the US to make a play for the bank.

With stocks so low, look for cash rich companies to be on the prowl for interesting financial companies.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has a position and owns stock in ETFC and is long the stock. He has no positions in any other stock mentioned as of 1/10/08.

Note: The Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Volatility Index S&P 500 Options-VIX down .38 to 10.27.

Cisco Systems-(NASDAQ:CSCO) option implied volatility decreases; suggesting less risk

Cisco is recently up $1.17 to $28.45 after announcing better than expected financials. American Technology Research reiterated its Buy rating and $36 price target on Cisco because "we believe CSCO is best-positioned to drive converged (voice, data, video, wireless) IP networks." SBSH keeps its neutral rating on CSCO. CSCO call option volume of 100,807 contracts compares to put volume of 29,585 contracts. CSCO March option implied volatility of 24 is below its 26-week average of 28 according to Track Data, suggesting decreasing price fluctuations.

MasterCard-(NYSE:MA) February option prices bid up into 2/9 EPS & Outlook

MasterCard, a global payment solutions company, will report EPS on 2/9. Merrill Lynch has Neutral rating on MasterCard. MasterCard February straddle is priced at $9.30, above its theoretical value of $5.90 suggesting larger near term risks. MA call option volume of 4,279 contracts compares to put volume of 2,235 contracts. MA March option implied volatility of 40 is near its 26-week average of 38 according to Track Data, indicating non-directional price fluctuations in next six weeks.

Novelis-(NYSE:NVL) option implied volatility increase continues; indicating price risks

NVL, a manufacturer of aluminum rolled products with approximately 12,500 employees, and $8.4 billion in 2005 revenue, is recently up $4 to $40.85. Novelis said on 1/26/07 "it is currently in discussions with various parties that could lead to a potential sale of the company." BMOC Capital says "NVL has good assets, a strong market position and the potential to improve margins in the longer term, which could make it attractive for a strategic buyer." NVL March option implied volatility of 54 is above a level of 45 from yesterday, above a level of 34 from 2/5 and above its 26-week average of 39 according to Track Data, suggesting larger price risks.

Option volume leaders today were: Cisco-CSCO, Broadcom (NASDAQ: BRCM), Altria (NYSE: MO) and Intel (NASDAQ: INTC).