DJ Options Report: VIX Eases Slightly, But Traders Wait
03 Feb 15:30
By Kopin Tan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Stocks climbed after data pointed to
better-than-expected manufacturing activity in January and construction
spending in December, but showed little signs of busting out of the recent
trading range.
So option investors played the waiting game, guarding against both the
possibility of further weakness and the chance of a rally, which some traders
believe could happen if any good news emerges to counter geopolitical worries.
Bullish call options traded briskly in SBC Communications as
telecommunications stocks enjoyed a good session. SBC stock was ahead $1.05 or
4.3% to $25.49. Its February 25 calls traded 3,733 contracts, compared with
open interest of 10,602 contracts, and rose 55 cents to $1.30 at the Pacific
Exchange.
The Chicago Board Options Exchange market volatility index, or VIX, fell 1.57
to 34.21 and appears headed toward its first close below 35 in more than a
week. This option-market fear gauge increased markedly last week to mirror
investors' rising anxiety, pushing above 40 on Jan. 27, as investors grappled
with the approaching threat of a war with Iraq.
The ratio of equity puts traded to calls spiked. While this usually indicates
mounting investor caution and is considered a bullish signal by contrarians,
Monday's heavy put volume was accounted for by an unusually large put trade
involving long-term puts on the QQQ, or Nasdaq 100 Tracking Stock, expiring
2005.
Specifically, an institutional investor bought more than 110,000 contracts of
the January 45 puts expiring 2005, while selling a roughly similar number of
the January 55 puts expiring 2005. It isn't immediately apparent what drove
this trade.
The QQQ most recently was ahead 12 cents to $24.56. Its January 45 puts
expiring 2005 were at $20.40 as 121,001 contracts traded at the CBOE and the
American Stock Exchange. The January 55 puts expiring 2005 were at $30.30 as
112,750 contracts traded at these two exchanges.
Nike Inc.'s options also were active, with some of the volume driven by what
appears to be option buyers. Specifically, Lillian Seidman, senior option
strategist at Miller Tabak & Co., noticed buyers of the April 45 straddles - or
buying both April 45 calls and April 45 puts. Buyers of straddles benefit if
the underlying stock price moves significantly in either direction, although
the investor could lose money from the decay of option value over time if the
stock price doesn't budge.
The athletic footwear and apparel retailer was off 58 cents to $43.96. Its
April 45 calls traded 1,160 contracts, compared with open interest of 2,049
contracts, and gained 10 cents to $2.55 at the Pacific Exchange. The April 45
puts traded 1,361 contracts, compared with open interest of 1,072 contracts,
and were at $3.20 at the Pacific.
Among other things, Seidman also noticed some investors buying puts in Toys R
Us Inc. It isn't clear what drove the put buying, but market watchers noted
that FAO Inc., parent company of rival toy retailer FAO Schwartz, has filed a
reorganization plan with the U.S. Bankruptcy Court in Delaware on Friday,
detailing plans to emerge from bankruptcy by the second quarter.
Toys R Us was off 8 cents to $8.96 Monday afternoon. Its March 10 puts traded
2,589 contracts, compared with open interest of 6,233 contracts, and were at
$1.30 at the Philadelphia Stock Exchange.
-Kopin Tan, Dow Jones Newswires; 201-938-2202; kopin.tan@dowjones.com
(END) Dow Jones Newswires
02-03-03 1530ET |
