Glenn, its 5:15pm. I just walked in the door. Did Dell disappoint?
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CHICAGO, Feb 16 (Reuters) - Implied volatility on Dell Computer Corp. <DELL.O> options was expected to remain at lofty levels on Wednesday after the group posted disappointing revenue growth, traders said on Tuesday.
While the industry bellwether reported profits of $0.31 per diluted share for the fourth quarter, in line with expectations, after the stock market closed, its revenues totaled $5.17 billion for the quarter, which disappointed some analysts.
Dell also announced a two-for-one stock split.
The stock tumbled to 80-1/2 in after-hours trading, down from its close on the Nasdaq of 88-3/4 and down sharply from its peak of 110 set just two weeks ago.
"The concern is the revenue number, and vols will probably stay high for a while," said Paul Foster, investment strategist and editor of 1010WallStreet.com.
Implied volatility, a key factor in determining options prices, was trading well above 100 percent for the soon-to-expire February at-the-money options. It was trading around 80 percent for the March at-the-money options, traders said.
It had been at extraordinarily high levels during the past week amid speculation that Dell would disappoint.
"We might see some call buyers move in here because of the stock split," Foster said.
But Dell could take the entire sector down on Wednesday, he said. "It'll be a tech wreck tomorrow if Dell doesn't recover," Foster added.
Michael Schwartz, chief options strategist with CIBC Oppenheimer, said traders were clearly positioning themselves for bad news on the earnings front.
"There was a little call buying in the February (contracts), but my gut feeling is that the buyer was closing out an existing position to cut their exposure ahead of earnings," he said.
February options expire at the end of the week.
Schwartz also noted buyers of February 90 straddles, betting on increased volatility in the stock.
He said trading in options on Hewlett-Packard Co. <HWP.N>, which also reported results after the market closed, seemed to be dominated by rollover rather than speculation.
"There was more activity on the calls, but a lot of that looked like rollover," he said. "They didn't appear to be playing for an earnings surprise."
Implied volatility on Hewlett-Packard February at-the-money options closed around 75 percent and around 55 percent for the March options contracts.
The underlying stock closed down 3-5/16 to 73-1/4 on the New York Stock Exchange.
19:32 02-16-99
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