OPTIONS FLURRY SUGGESTS LEAK IN DEFENSE TAKEOVER.

Byline: Floyd Norris The New York Times

It took more than three months for executives at Lockheed Martin and Loral to work out their deal to merge most of Loral into Lockheed while spinning off Loral's space and communications business to shareholders.

Then they waited more than two weeks to announce it. Late during that period, it appears that some options traders got word of what was going on.

Leaks in advance of takeover offers are far from unusual, but this one seems by Friday to have spurred a lot of trading by speculators who were paying ridiculously high prices for options that would expire the following week.

Ridiculously high, that is, unless the buyer had good reason to think that Loral's stock price would soar quickly, as it did Monday.

The Chicago Board Options Exchange, where the options are traded, confirmed Monday that it was looking into the trading, but would not say more. Proving any individual buyer of the options had inside information may be difficult.

Any of those who made such prescient purchases could easily claim they were influenced by Thursday's announcement that Northrop-Grumman was buying Westinghouse's defense electronics business.

Still, the prices options buyers were willing to pay after the demand started rising Thursday afternoon, and particularly in trading late Friday, made it appear that the buyers were confident.

"The volume was not large in terms of takeovers, but it was huge in terms of what is normal for Loral," said John Streibich, one of the market makers in Loral at the Chicago board.

He noted that on Friday, with the stock trading no higher than $36.50, options to buy the stock at $40 by Jan. 19 traded as high as $1.50 each. Unless the stock rose by $5, those purchases were going to be losers. "It was fairly obvious that something was in the works, given the premiums they were willing to pay," he said.