Yahoo! Inc. (NASDAQ: YHOO) believes it is worth more money than what Microsoft Corp. (NASDAQ: MSFT) is currently willing to pay for it. That isn't a surprising fact. According to the following article, Yahoo! is confident that it will be doing pretty well over the next couple years, and that Microsoft shouldn't have a problem with paying somewhere around $40 per share, a price which is significantly higher than Mr. Softy's original bid of $31 per share.

There's a lot of speculation as to what will happen. Many observers believe that Microsoft will stand tough and get its price (I'm in that camp at this time). Even though Yahoo! has released some data that suggests that it will be doing well enough in terms of revenues and cash flow to justify the $40-per-share price, I personally wish Microsoft would just forget the whole thing.

Yes, Yahoo! is a huge brand and a major force on the web, and yes, I guess this would help Microsoft against Google Inc. (NASDAQ: GOOG) and such. But I just don't buy the thesis that Microsoft, no matter what, absolutely needs Yahoo! to grow its business. I think the software giant could easily invest in its own internet properties to further enhance its value in this area. Plus, the Internet is changing so fast all the time, who's to say that Yahoo! will be the right investment for Microsoft? Would that takeover capital be better off invested elsewhere, such as in the Xbox division, which is really doing well right now? Would a higher dividend be in order?

Netflix Inc. (NASDAQ: NFLX) -- call volume aggressive on takeover speculation.
NFLX, a provider of DVD movie rentals, is recently up $0.34 to $21.70. NFLX was frequently mentioned as an M&A candidate in 2006. NFLX call option volume of 10,988 contracts compares to put volume of 290 contracts. NFLX June 22.5 calls are bid .55 cents above its theoretical value of .26 cents. NFLX July option implied volatility of 38 is near its 26-week average according to Track Data, suggesting non-directional price risk.

Oakley Inc. (NYSE: OO) -- volatility suggests catalysts as OO trades near 68-month high.
OO is recently at $25.01. Morgan Keegan says: "Last week an Italian daily, la Repubblica, reported Luxottica Group (NYSE: LUX) could acquire OO. Last night, OO amended its 1Q:04 severance agreement accelerating vesting on a change in control. Further, covered employees will now be paid out 100% of the pro rated amount rather than 50%. This is usually a tell-tale sign that a company is at least exploring a sale. We point out Jim Jannard owns 64.1% of the share outstanding." OO July option implied volatility of 37 is above its 26-week average of 33 according to Track Data, suggesting non-directional price fluctuations.

Option volume leaders today are: Oracle (NASDAQ: ORCL), Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) and General Motors (NYSE: GM).

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

MGM Mirage (NYSE: MGM) implied volatility Spike suggests more fluctuations on Kerkorian. MGM is recently up $18.12 to $81.02. Kirk Kerkorian's Tracinda announced its intention to enter negotiations with MGM to acquire Bellagio and City Center. MGM June option implied volatility of 41 is above a level of 29 from yesterday and above its 26-week average of 31 according to Track Data, suggesting larger risk.

Illinois Tool Works (NYSE: ITW) June calls active on takeover Speculation. ITW, a manufacturer of engineer products and specialty items, is recently up $1.29 to $53.30 on M&A chatter. ITW has a market cap of $28 billion with long term debt of $956 million. ITW Jan 55 calls have traded 192 times on transaction volume of 5,788 contracts, below its open interest of 12,792 contracts. ITW January 55 calls are bid .75 cents above its theoretical value of .60 cents according to Track Data, suggesting upside hedging.

Option volume leaders today are: Dendreon (NASDAQ: DNDN), Medtronic (NYSE: MDT), Elan (NYSE: ELN) and Corning (NYSE: GLW).

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