Traders Try to Connect with Global Crossing Call Options

On what has been a fairly flat day, beleaguered telecommunications firm Global Crossing(GX Quote) was seeing some interest in the options market.

There was heavy volume on July 10 calls of Global Crossing this morning, with volume at 10,000 vs. an open interest of 604. The Bermuda-based company is a multiple-listed option, but customers seem to have found a "fair price" on those calls on the Philadelphia Stock Exchange. According to CIBC World Markets strategist Mike Schwartz, customers are flocking to the Philly because it has the best available premium on the July 10 calls. As a customer, you're not going to pay $3 in one place when you can get it for $2.50 somewhere else.

The stock was down 44 cents, or 4.8%, to $8.81 in recent trading.

Volatility Index
Today	% Change
36.29	-1.39
Source: ILX

The premium on the July 10 calls is listed at $2.10, which Schwartz calls "high in relation to theoretical value." People buying the July calls are bullish that the stock will appreciate but want to minimize their risk, considering the current conditions in the telecom sector and the overall (un)health of the economy. Schwartz also points out that a good strategy for option traders now is to look for stocks trading under $20 that have low premiums. Applying this strategy successfully could produce a return of 20% to 25%.

Nasdaq Volatility Index
Today	% Change
76.90	-3.34
Source: ILX

Buying call options, if used correctly, can offer a way for investors to land in the money without leaving them in a vulnerable position. If they change their minds about the long-term prospects of a stock, they can always sell the contract back at a profit without seriously damaging their cash positions.

Global Crossing's April 10 calls were active, too. More than 750 of the contracts traded this morning.