Shares in the Germantown, Md.-based maker of network security products surged 9.94 to close at 13.5, a gain of 279 percent. Earlier in the day the shares reached 16.
Volume exceeded 60 million shares, making the small company's stock the most heavily traded in U.S. markets.
In a statement, V-One said its SmartGate software will be compatible with version 6.0 of Red Hat's Linux.
V-One's software provides authentication and encryption technology and is used by companies that have set up networks that are accessed by customers and employees. V-One's software is already available for other platforms, including Windows CE.
Red Hat distributes and services its own version of Linux, a freely available operating system that competes with Microsoft products and is growing in popularity.
Red Hat is reaping the benefits from that popularity. Its stock has surged since its initial public offering and closed today at 210. That's down more than 26 points from yesterday, but still far and above its IPO price of 14.
One analyst said investors may have overreacted today to V-One's product announcement.
Eland Danon of La Salle Street Securities attributed today's run-up in the stock price to day traders, who often jump into the latest hot stock to make quick profits. Noting that his firm has a "speculative buy" rating on the stock, he said that "at these levels, it's a little scary."
"There's lot of day trading going on there that poorly reflects where they are at this stage in the game," Danon said.
According to Danon, V-One has some issues to resolve. The internal sales force "turned over" in July, the company has previously run low on working capital, and it faces strong competition from Check Point Software Technologies, he said.
Check Point also has benefited from investor enthusiasm for products used in setting up virtual private networks. The company's stock closed today at 141.62, up sharply from a 52-week low of 23 that was reached in April.
A V-One representative could not be reached for comment.
V-One sold 3 million shares to the public in 1996 for $5. For much of this year the shares hovered between 2 and 4.
In 1998, the company posted annual sales of $6.26 million and a net loss of $9.19 million.