Options Buzz: Call Buyers
Crowd into Lucent Targets
By Dan Colarusso
Senior Writer
10/2/98 1:21 PM ET
Never before has Oct. 1 prompted the furious
speculation bubbling in the network equipment
sector as investors take aim at Lucent's
(LU:NYSE) potential takeover targets.
At the heart of the rumors is the possibility that
either Ascend (ASND:Nasdaq) or 3Com
(COMS:Nasdaq) will end up as Lucent's mate.
One popular rumor that has Lucent buying 3Com,
not Ascend, boosted 3Com shares and pressured
Ascend's. Lucent representatives declined to
comment; Ascend and 3Com officials could not be
reached for comment.
Options activity in each company is running
counter to the overall weakness the sector, as call
buyers play out-of-the-money options. In Ascend,
the shares were down 2 3/16 to 39 3/8 at midday
after being down more than 5 early.
Ascend's October and November 40 calls were
active, each trading more than 700 contracts
against the downturn in the underlying shares.
Traders were willing to pay about 3 3/8 ($337.50)
for the October 40 calls and around 5 ($500) for
the November 40 contracts.
3Com speculation has been as brisk, traders said.
Options volume has been "slightly unusual" and the
implied volatility -- the expected trading range of
the shares -- had "exploded" over the past few
sessions, according to Pacific Exchange trader
Karim Tahawi. "The vols are up 20 points," Tahawi
said. "It was very busy yesterday afternoon." He
and other traders said trading patterns likely
reflected the takeover rumors in the marketplace.
As casualties mount overseas, the question is
whether Europe and Asia are shopping more
choosily or have slowed spending all around.
Scientific-Atlanta (SFA:NYSE) only added to the
confusion this morning by warning of poor quarterly
sales in Asia, Latin America and Europe. Satellite
and certain transmission products sold poorly, it
said, and in Brazil the company encountered a
delay in the issuance of cable licenses. In Europe,
some customers put off deploying new systems.
While Scientific-Atlanta's operations have little
direct bearing on Cisco, Ascend or Lucent, its
announcement today poured oil on the fire that was
started late last month by warnings from Northern
Telecom (NT:NYSE) and Alcatel (ALA:NYSE
ADR).
For its part, Lucent says today it's still comfortable
with the range of analysts' estimates for the
September quarter, even accounting for its
exposure to foreign markets. Ascend's
remote-access product division, which also is
exposed internationally, is on track to meet its
goals this quarter, according to one sell-side
analyst. The stock is falling along with Cisco's
because investors don't like pricey stocks in this
ugly market, according to the analyst. Ascend
could not be reached for comment.
****
The beating taken by the Nasdaq yesterday
brought out two big trades in the Philadelphia
Stock Exchange's OTC Prime index, or OTX,
which isolates the top 15 over-the-counter stocks.
Traders said an investor bought 7,500 November
210 puts and sold 5,500 October 200 puts when
the OTX stood at 199. That position is essentially
insurance against a continued, but somewhat
limited, drop in the Nasdaq. |
