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By David Russell

Options action is turning bullish on Calpine (NYSE:CPN), which has been consolidating at higher levels amid takeover rumors.

Our Heat Seeker tracking system has detected noteworthy call activity in the power-generating stock in the last two sessions as traders have positioned for a potential rally.
CPN Chart

It started Tuesday with the purchase of about 9,000 April 12.50 calls for $0.25 to $0.35 against open interest of 3,700 contracts. The buying continued yesterday as investors snapped up a 15,000 January 2012 12.50 calls for $2.

CPN rose 0.17 percent to $11.61. The stock has been consolidating above its February range since getting upgraded to "buy" at Jefferies on March 5. The company reported a wider-than-expected fourth-quarter loss on Feb. 25 and reiterated its 2010 guidance.

The shares have been trading in an increasingly tight range in the last two months, which some chart watchers may consider prelude to a bigger move. The calm is reflected in CPN's 37 percent implied volatility reading, down from 54 percent at the beginning of November.

The call buying pushed overall options volume in the name to eight times the average level in the last two sessions, with calls outnumbering puts by more than 65 to 1.

Disclosure: No positions

Source: Calpine Calls Jump With Buyout Talk