Keep watching the Call/Put Action for market Direction:
CHICAGO, Oct 29 (Reuters) - U.S. stocks are attempting to
maintain the upward momentum generated by Tuesday's dazzling
rally, but not all investors have turned bullish.
Options traders said Wednesday that one U.S. institution
had sold out a large bullish butterfly spread position in
options on the Dow industrials (INDEX:$INDU), which are based on an
index <.DJX> that is one one-hundredth the size of the
underlying Dow average.
By 1230 CST/1830 GMT, the DJX November 80 call traded
10,635 contracts, the November 82 call traded 20,500 and the
November 84 call traded about 10,000.
With the Dow industrial average up 20 at 7,518, the DJX was
up 0.20 at 75.18. December Dow futures were ahead 30 at 7,535.
"It was closing out an old position," one broker familiar
with the DJX options trade said. "Basically the thought is that
the market's going to go back down, so it was closing out of a
bullish position."
The butterfly was initially put on shortly after the
options began trading on October 6.
Jack Callahan, an independent market maker at the Chicago
Board Options Exchange, said the trade was done by one
institution, with market makers taking the other side.
In other index trading, traders said institutions were good
buyers of some S&P 500 index (INDEX:$SPX.X) options, where the November
955 call traded more than 11,500 contracts and the November 945
call trded 10,815.
One trader said, however, that not all the orders were buy
orders, as sentiment was mixed regarding the market's ability
to continue to recover from its recent selloff.
"There's anticipation both ways," Callahan added. "Some are
waiting for the market to possibly test new highs, and of
course some want to see if (Tuesday's rally) was a one-day
aberration."
A futures-options trader at the Chicago Mercantile Exchange
said the market has further upside potential short term but
would likely trade lower before testing all-time highs.
"As somebody said on the radio this morning, 'We've just
had an earthquake and now we have to wait for a couple of
tremors,'" he said.
On Monday, the Dow industrials dropped 554 points, their
biggest one-day point loss ever, but then rebounded 337 points
Tuesday for the largest one-day point gain ever.
"We have to look both ways, and volatility reflects that to
some extent," Callahan said. "We have to discount wider ranges
here."
The Chicago Board Options Exchange's volatility index
(INDEX:$VIX.X) was up 0.56, or about 1.85 percent, at 31.02 Wednesday
afternoon despite the Dow's gains. The VIX is priced off
certain front-month S&P 100 index (INDEX:$OEX) contracts. The OEX was
down 1.70 at 881.67.
E-mail: chicago.derivatives.newsroom@reuters.com
Copyright 1997, Reuters News Service
Companies or Securities discussed in this article:
Symbol Name
INDEX:$INDU Dow Jones 30 Industrials
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