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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Jan Crawley who wrote (42892)	2/27/1999 10:33:00 AM
From: tonyt	Read Replies (1) \| Respond to of 164684

Barrons: 'Netting Nothing New Web index options flop By MICHAEL SANTOLI The atomized and populist nature of the Internet has fostered the proliferation of random shards of digital information, sites that are posted, never go away, yet are wholly unnoticed -- old college term papers, electronic wedding albums of long-divorced couples and ill-conceived online businesses that never made a dime. It's fitting, then, that options exchanges keep creating Internet stock indexes that are very similar to those that already have been listed and that have failed to capture anyone's interest. In the past two weeks, both the American Stock Exchange and the Chicago Board Options Exchange have begun trading options on separate electronic commerce indexes, composed of the stocks of firms that generate their revenues principally over the 'Net. The Amex has TheStreet.com E-Commerce Index (ICX), launched February 17 and developed with TheStreet.com financial news site, while the CBOE Friday teed up the Dow Jones Internet Commerce Index (ECM), fashioned by Dow Jones, publisher of Barron's. Each contains 15 stocks, though they have only five components in common. Other distinctions: The ICX is equal-dollar-weighted, with each component initially having the same influence, while the ECM is weighted by market value, though stocks will be limited to a maximum 10% composition of the market. The differences between the competing products, in other words, are not significant enough to justify two clone indexes, given how these stocks often move in lockstep -- and the potential market for Internet index options as a whole may be too thin to warrant even one of them. Consider that the ICX after its first seven days had mustered only minimal trading levels and there were virtually no bids or offers on Friday. The ECM Friday had modest first-day volume of 460. Even the already-established TheStreet.com Internet Index on the Philadelphia Stock Exchange -- which qualifies as a modest success for new index products these days -- has underwhelming volume considering the frenzied trading in the underlying shares, debuting in December with 868 contracts and averaging 848 a day since. There is nothing inherently wrong with the indexes as designed, and in theory investors should jump at the chance of playing such a volatile sector through a leveraged yet risk-limiting vehicle such as options. But as noted here in the past, there are numerous reasons these products fizzle: The stocks may be wild enough for investors that they don't need to resort to a leveraged option, and bid-ask spreads are gaping, due to the underlying stocks' volatility and the difficulty market makers may have hedging the stocks. It also doesn't help that the index-options business is struggling to increase volume overall, in contrast to the record trading levels for stock options. Perhaps there's also little confidence that a truly representative index can be created and relied upon at this stage of 'Net-stock evolution, even if individual issues command short-term obsession. If, in 1982, one were to formulate an index to track the burgeoning PC industry, it likely would've held Osborne, Atari, Eagle, Commodore and ComputerVision, according to a recent retrospective report by Legg Mason's Raymond DeVoe. Compaq didn't go public until late 1983. Sure, Apple and IBM might've been selected, but in the structure of the above indexes they would've been limited to small portions of the whole. If last week's phenom IPO, PcOrder .com -- which is in no index -- turns out to be to e-commerce what Dell is to PCs, how reliable will these new indexes look down the road? Schaeffer's Investment Research, run by options-analysis pro Bernie Schaeffer, last week forecast a 20%-plus return for stocks this year, pegging the Dow Industrials' peak in 1999 at 11,500. The call was based on investors' continued skepticism, calendar issues and the historical market returns following two straight interest-rate cuts.