U.S. OPTIONS- Applied Materials (NASDAQ:AMAT) calls bid
Reuters, Thursday, April 29, 1999 at 19:06
CHICAGO, April 29 (Reuters) - Implied volatilities for
Applied Materials Inc. options spiked up on Thursday due mainly
to strong bid for out-of-the-money calls, despite a sharp drop
in the underlying stock this week.
"We've got a lot of call buyers today, May calls
particularly," said Ross Goodheart of Group One Trading L.P.,
lead market-maker of the options on the Pacific Exchange.
The stock was down 4-1/16 at 50-1/8 at midsession on volume
of more than 17 million shares after dipping to 48-7/16
earlier. It has fallen more than 10 points from last week's
60-3/4 close and nearly 20 from a 68-7/8 high on April 7.
However, the out-of-the-money May 60 and 55 calls were
among the busiest contracts on the Pacific Exchange with about
2,600 and 1,900 contracts trading.
Given the big slide in the stock, a surge in the options'
implied volatilities was no big surprise, but some market
watchers suggested that the low-delta call activity meant there
could be a lot of speculative plays taking place, probably in
anticipation of a quick rebound in the stock.
Implied volatility for May at-the-money 50 calls shot up
above 80 percent from about 70 on Wednesday and around 60 in
the last month or so, noted Paul Foster, strategist at
1010wallstreet.com.
"This means that we're waiting for something," he said.
"Volatility spiking this high, something's going on."
Traders said there appeared to be no major news on the
company in the last few days and that quarterly earnings were
not due out until around May 18.
A Merrill Lynch report to its clients cited the
semiconductor equipment industry's exposure to the dynamic
random access memory business as a possible reason for the
stock's weakness but noted that upcoming earnings should be
solid.
Goodheart at Group One said the stock selloff appeared to
be part of a market-wide rotation out of technology stocks into
big caps that have sent the Dow Jones Industrial Average
soaring above 10900 but subdued broader indices.
He added that the call-buying could be due partly to
liquidation of short calls by buy-writers.
"People that sold calls when the stock was trading 55 or 60
or 65 are just buying their shorts," the market-maker said.
"They have had a nice profit (on the short calls) and I think
they're taking their money off the table."
In a buy-write, a trader buys a stock and sells a call
against it. The premium from the call selling would supplement
the stock's returns if the stock makes little or no gain and
would partially offset losses if the stock declines. The risk
is that the stock could be called away by the call buyer if the
stock makes a big gain.
chicago.derivatives.newsroom@reuters.com))
Copyright 1999, Reuters News Service
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