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The EA (ERTS)/Take-Two (NASDAQ:TTWO) saga continues. Here is what my friend had to say about TTWO's options:

The number of call contracts (meaning, they can buy the stock at that price no matter how high it rises) are very high, way exceeding the puts contracts (meaning, they can sell the stock at that price no matter how far the stock drops). This is for September, October, and December. The number of open contracts is significantly higher for September than the other months, probably because a lot of these contracts were opened months ago when ERTS was rattling its saber particularly loudly. I think the drastic drop in open contracts means people are getting bored with ERTS' overtures.

Buying the December 25 calls [might] be a cheap way to play this baby. You'd only tie up a nominal amount of money, and... if ERTS does buy TTWO it will be for at least 26, so it's pretty much a double-or-nothing type venture. The flip side is, the very small number of open put contracts suggests everybody's expecting ERTS' offer to remain on the table indefinitely.

I am blessed to have some smart friends (thanks, Jeff), and I think his analysis is spot-on. At a certain point, EA must acquire other companies to grow, and the few potential targets in the video game sector mean ERTS will work hard to buy TTWO.

Also, ERTS is not playing it safe--it has been reporting a loss per share for some time now--so ERTS may end up offering significant cash per share to make the deal happen. TTWO, on the other hand, is cash-rich and just reported net revenue of $433 million. For TTWO, the only question is who and when--who will take them over, and when will it be?

TTWO's high cash reserves make it difficult to place a takeover value on the company, and because it has been reporting reasonably good sales, TTWO may take the attitude that it can just sit back and wait for better offers. Yahoo's (NASDAQ:YHOO) Jerry Yang tried that, too, with disastrous consequences for his company's share price. I can't wait to see how this particular drama unfolds.

Disclosure: Long TTWO