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Wall Street’s been abuzz about the activity in EMC Corp. (NYSE:EMC) options over the past two days. On Wednesday, EMC options volume was completely off the charts, as 353,000 calls and 107,000 puts traded on the day. Thursday, the action continued with another 185,000 calls and 32,000 puts traded during that time. The stock is up roughly $1.00, or 7 percent, to $15.01 over the course of those two trading sessions.

The possible explanations for the stock’s strong performance and the surge in call volume vary. Some cite takeover chatter, which isn’t new. EMC has been rumored as a takeover prospect for months if not years. Nothing ever seems to happen, but the chatter has certainly infected EMC more than once.

Others believe that the stock is reacting to the idea that the company is developing stronger strategic relationships with US telecomm communications companies. Friedman Billings analysts upgraded EMC to Outperform Thursday saying, among other things, the value of the company’s core business is benefiting from growing importance to large telecom services providers such as AT&T (NYSE:T) or Verizon (NYSE:VZ).

A third theory holds that EMC might soon announce a spin off of its remaining stake in VMWare (NYSE:VMW). According to the Wall Street Journal’s Tennille Tracy, “Some traders appeared to be acting on speculation that the data-storage company could spin off its stake in VMWare Inc., a company it bought in 2004 and took public in 2007.”

Looking at the recent action in the options market, the third theory gets a little more interesting. While focus was clearly on EMC options Wednesday and Thursday, VMWare also saw an upick in volume. On Thursday, for example, total volume ran double the usual. However, unlike EMC, the trading in VMWare was not so bullish. 22,000 puts traded on Thursday, compared to 6,800 call options.

Among the day’s more noteworthy trades was a substantial butterfly spread on VMW. A butterfly is a popular strategy that involves selling puts (or calls), while also buying puts (or calls) with higher and lower strike prices. For example, a strategist might sell two at-the-money calls (calls with a strike price equal to the stock price) and buy a call with a higher strike price and a call with a lower strike price. The at-the-money calls form the body and other two create the wings of the butterfly.

As an example, at approximately 13:30 Eastern time, an order for 7,200 VMW September 30 puts traded bidside for $1.19 a contract on the ISE. At the same time, 3,600 of the September 25 puts traded askside for 42 cents a contract and another 3,600 of the September 35 puts traded askside for $3.16. Since all three trades printed at the same time and given the size of the orders (3,600 equals half of 7,200), it is probably safe to assume that this was one player creating a substantial butterfly spread on VMWare.

If so, it is a significantly bearish bet on the stock because the body of the butterfly is below the current stock price. To be specific, this butterfly would yield its best profits if the stock falls and settles at $30.00 a share (the strike price of the short puts) at September options expiration, which is 15.5 percent below its closing value of $35.85 a share on Thursday. The profit zone at expiration is between $26.20 and $33.80 a share. Therefore, the bear butterfly spread in this case seems to be a substantial bet against VMW, which could make sense if EMC is set to unload millions of shares via a spin off.

Disclosure: none