TSC Options Buzz: Knuckles Turning White as Stocks Flash Red
[1.05 high put/call ratio and 36.05 high volatility]
thestreet.com
By Gregg Wirth
Staff Reporter
8/21/98 1:05 PM ET
So much for predictions that today's options expiration
would drive stocks higher. But, then again, that was before
U.S. missiles began raining down on the Middle East. With
the market down almost 250 points by midday, expiration
posturing seemed to fade -- but as with McGwire, the last
innings will tell the story.
A convergence of storm clouds -- Russia, Asia, terrorism
and a White House sex scandal -- have gathered to shake
investors' confidence in the ability of the U.S. to handle such
situations, according to Leon Gross, options strategist for
Salomon Smith Barney. "I think the markets are seeing
the U.S. as not in control," he said, adding that the dollar
was down today, which is historically at odds with the
aftermath of past military interventions.
As the Dow plummeted, R.F. Lafferty options head and
industry veteran Jay Shartsis said he was seeing some
volume levels and sentiment readings he doesn't normally
encounter. The equity put/call ratio was at 1.05 at near
noon, showing that 105 puts had traded for every 100 calls.
"That's very high, I haven't seen that in a couple of years," he
said.
In addition, Shartsis pointed to the spiking CBOE volatility
index, which jumped 7.3 to 36.50, a 25% rise in just a few
hours. Many traders had become comfortable that the VIX
was trading in the high-20s in the wake of the recent
volatility. Such levels, they surmised, meant continued
strength in the short term.
Expiration was adding some selling pressure to today's
market, Shartsis said. "Enough people were trapped long
because of the rally" that they were looking for an exit point.
"It's extremely oversold now," he said. These indicators,
Gross added, "reflect the general feeling of political and
economic uncertainty."
What does all this mean to the option markets and today's
expiration? Not much, Gross said. "Option investors are not
focused on expiration -- all of the business of expiration has
already been done," he added.
Still, the typical expiration-day speculating on the S&P 100
index options was in full swing at midday. By that point, with
the OEX down 13.27 to 525.26, more than 16,500 of the
out-of-the-money August 520 puts had traded as the
contract's premium climbed 1 9/16 ($156.25) to 1 3/4 ($175).
One change caused by the gloomy global mood, however,
was that options players seemed to be opting out of playing
the game for the next couple of months and concentrating
instead on medium-term plays. "I see people trading out six
months," he noted. Indeed, 1999 March options (six months
away from September) have sprouted up here and there in a
variety of call options.
John Platt, head options trader for Raymond James
Financial, said he hasn't seen the medium-term investing,
but has noticed increased put-buying today across the board
in company options. "I haven't seen panic, but things have
been busy all morning," Platt commented.
He noted call activity was heavy in the tech sector,
especially in Dell (DELL:Nasdaq) and Compaq
(CPQ:NYSE). Dell saw 11,177 contracts trade in its August
120 calls, which started the day in the money but now will
expire worthless unless Dell rallies. The action was likely
initiated by call holders looking to cash in before they lost
too much of the value of their options. Roughly 2 ($200) of
value drained out of the contract as the price dropped to 3/8
($37.50). Dell was trading down to 117 3/8, down 4 3/4, at
midday.
In other company plays:
Federated Department Stores (FD:NYSE) saw
massive rollover momentum on both its call and put side.
About 4,000 contracts in its August 50 calls looked like they
were rolled into the November 50s, which were trading at 2
5/8, or $262.50 per contract. Also, a put rollover between the
August 50 puts and the November 50 puts also moved about
4,000 contracts. Federated's stock was teasing the strike
price, falling to 48 1/16, down 1 1/2, in morning trading.
Perhaps the biggest put roll of the day went to
little-played Star Telecommunications (STRX:Nasdaq),
which saw its deep-in-the-money August 25 puts roll into
September 20 puts. The stock was 14 1/2, down 3/16.
Senior Writer Dan Colarusso contributed to this story. |
