Well the rumor mill is churning once again and this time I’m reading all about Shire’s potential offer to buy Cubist Pharmaceuticals (CBST) for 44.50/share.  I’m also hearing that Teva and J&J are in the hunt. The activity in Cubist has been extraordinary in the last few days and there is good reason to believe the hype.  Yesterday, the stock traded a not-to-shabby 5.7 million shares, about 4 times its 30 day average vol. With all this activity it is easy to believe that there is something cooking in the name.

From my perspective I’ve always found these rumors to be based in a fair amount of reality and I always pay keen attention to what is being written up in articles and on the message boards. I made good money this year in ICO after I watched an irregular move in the name on a Friday. At 9 dollars, I watched ICO moved up 2 points on supposedly “no news.” This activity got me interested. And although no news was reported, the message boards said so much more.

All over I read posts about how Arch Coal (ACI) was rumored to be buying the company. I kept it simple, I figured I could hold a small amount, a couple thousand share position and risk maybe .50 cents of downside for the potential that the rumor mill would once again pay off. It did not take very long. When I awoke on Monday, the news was flashing across CNBC; Arch Coal buys ICO for 14.5, a 3.5 point jump in the name.

1, I’m a believer that you can take any trade, as long as your risk/reward is in-line, risk .50 cents, make 3.5. I’ll take that trade every time. #2, I’m also a believer that the rumor mill is almost always right. I can’t count the number of takeouts I have heard over my career well before the actual announcement on the street. Someone always knows something and the information is worth paying attention too. So, for now I’m heeding this little discussion about CBST and the activity that is backing it up. I guess we will see if it is really just a rumor or if there is some validity to this chatter. I’m sure we will know soon enough.