Stephen Frankola sends: Electronic Arts (ERTS) has been courting Take Two (TTWO) for some time now; just yesterday they extended their current offer to buy out TTWO at about $26 per share just as it was set to expire.

Electronic Arts bid for TTWO when the shares were trading in the mid-teens, as TTWO struggled to do much of anything between releases of the different editions of Grand Theft Auto. However, the recent installment has been successful beyond expectations, and Take Two plans to ride that gravy train until its final stop.

In light of the success of GTA IV, Take Two is claiming that Electronic Arts’ offer significantly undervalues the business, which may be true. Here’s what the chairman of Take Two said today:

“We are fully engaged in a formal process to evaluate strategic alternatives that have the potential to deliver greater value than EA’s inadequate offer. As part of this process, we continue to engage in meaningful discussions with multiple parties, a number of whom have been conducting due diligence.”

-Strauss Zelnick, Take-Two chairman

The chairman hinted, if falling short of explicitly stating, that there are other companies shopping for Take Two. In the golden age of the video game, traditional media companies like Viacom (VIA) have been previously suggested/speculated upon being interested in such a purchase. Otherwise, Activision (ATVI) would be the only likely suitor, though they just completed their own merger with another company.

However, since the chairman stated with more-than-hypothetical language that there is the possibility of another offer, I think it’s worth it to gamble here. I bought TTWO August 27.5 calls for $.15 today; the shares closed at $24.66, a discount to ERTS’s offer. September calls at 27.5 strike went for about $.70.

Certainly, a higher bid is far from certain, and Electronic Arts could get tired of pursuing the stubborn Take Two and let its current offer expire. However, if another company does come in with a bid of, say, $30, owning either options contract will result in windfall profits.

Owning something like the August calls might actually be the safest way to play this; the enormous upside potential is preserved, while the downside from a the end of ERTS’s extensions won’t be too painful. I can’t say that I expect a new bid to emerge - and for one to be announced within the next month is even less likely - but I’d rather lose a little money speculating than miss a hugely profitable trade.

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Disclosure and Note: I am long TTWO Aug 27.5 Calls. If a new bid is made, I have a crystal ball for sale… but actually, any success predicting such an event is because of common sense and/or dumb luck.