Options Report: Market Trades Defensive, Waits For News
By Steven M. Sears
06/14/1999 Dow Jones News Service
(Copyright (c) 1999, Dow Jones & Company, Inc.)
NEW YORK (Dow Jones)--Options traders were on the defensive Monday, using the stock market's rally as a chance to buy cheap index hedges for their portfolios.
Defensive trading strategies were also a hallmark in equity options as traders sold calls against existing stock positions.
A firm that was short 3,380 Yahoo! Inc. June 190 calls, for example, covered the position at 1/8 and then sold the same number of July 150 calls at 8. The firm received about $2.7 million in premium.
Defensive trading is likely to continue until the consumer price index is released on Wednesday and traders can better assess the interest-rate picture. There are still concerns the Federal Reserve will raise interest rates before its policy-making committee meets June 29 and 30.
"Everyone's waiting for the next piece of news and then they say 'OK,' and then wait for the next one," a strategist at an options-floor trading firm said.
Oracle Corp., which is expected to report earnings after the close of Tuesday's session, was a good example of how news-sensitive the market has become.
A firm bought about 20,000 of Oracle's June 25 calls and sold a block of 900,000 shares of stock at 25 5/8, a trader said. The position is now more sensitive to the earnings news because options are, by their nature, more leveraged than stock.
Since the early morning trade, Oracle's stock has advanced 7/8 to 26 3/16, while the calls, purchased for 1 5/8 are now at 2 1/16, up 1/2 on volume of 20,075 contracts, compared with open interest of 14,574 contracts.
"They're setting up for some type of move," the trader said.
Elsewhere in the options market:
- C-Cube Microsystems Inc. continues to attract a lot of traders. The allure appears to be the perception that the data-compression business is a good business in the digital age, but there are some takeover undertones to the way the company's options trade.
Toward the end of every week, a variety of firms start buying C-Cube calls. An increase in call activity on Thursday and Friday usually suggests that people expect a deal will be done over the weekend.
Unlike other deal stocks, the firms hold on to C-Cube 's calls, which have appreciated in value as the stock has advanced from 27 to 34. With the stock up 2 1/16 at 34, C-Cube 's most actively traded call, the June 35, is up 1/8 at 1 on American Stock Exchange volume of 645 contracts, compared with open interest of 2,181 contracts. At the Chicago Board Options Exchange, which also trades C-Cube , the June 35 was up 1/16 at 1 on volume of 303 contracts.
- Aggression definitely comes with a price tag.
Qwest Communications International Inc. call options are off sharply in reaction to its hostile bid to wrench U S West Inc. and Frontier Corp. away from Global Crossing Ltd. Qwest's acquisition offer is $55 billion in cash and stock and the assumption of $11.4 billion in debt.
With its stock down 10 1/2 at 34 5/16, Qwest's June 37 1/2 call - which was in-the-money on Friday - fell 6 7/16 to 13/16 on CBOE volume of 1,419 contracts, compared with open interest of 198 calls.
At the Amex, the June 37 1/2 was down 6 1/2 at 3/4 on volume of 974 contracts. The call was down 6 7/16 at 13/16 on volume of 232 contracts at the Philadelphia Stock Exchange.
- Holders of ebay Inc. put options raked in money as the stock fell 14% after the company said second-quarter revenue would decline by $3 million to $5 million because of a system malfunction that knocked the site down.
The price of the June 160 puts rose 17 1/8 to 22 on American Stock Exchange volume of 1,133 contracts, compared compared with open interest of 1,203 contracts.
- The effect of better-than-expected earnings increased the volatility of H&R Block's options to 42 from 37 as the stock pushed toward its 52-week high of 51 3/4. At the American Stock Exchange, which lists the tax preparer's options, a firm bought more than 1,000 June 50 calls that expire on Friday. With the stock up 1 at 50 11/16, the June 50 call gained 7/16 to 1 9/16 on volume of 1,060 contracts, compared with open interest of 694 contracts.
- Index traders and arbitragers should note that the Frank Russell Co. is rebalancing its 3000, 2000, and 1000 indexes. The company released late last week a preliminary list of companies that will be added and deleted from its U.S. equity indexes. A final list will be available July 8 at www.russell.com, or by contacting the company.
- The triple expiration of equity and index options and certain futures contracts occurs later this week, but Michael Schwartz, CIBC Oppenheimer's chief options strategist, thinks the "triple witch" will be a "triple whimp." Open interest in Standard & Poor's 500 futures contracts is about 250,000 in September, compared with about 150,000 in June, indicating that most people have already adjusted their positions. He expects the bulk of the remaining June contracts will be rolled to September by Wednesday.
- The option market's fear gauge, the Chicago Board Options Exchange's Market Volatility Index, or VIX, fell 0.30, or 1.1%, to 26.71, backing off an intraday high of 28.06.
- The CBOE's equity put/call ratio was a neutral 0.54. Overall, 218,910 puts traded, compared with 408,021 calls.
- The CBOE's index put/call ratio was a bearish 1.20. Overall, 80,313 puts traded, compared with 67,071 calls.
-Steven M. Sears; 201-938-5355
(END) DOW JONES NEWS 06-14-99 |
