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Options Traders Steer Clear of Nasdaq Pop

Brian Louis

Some options traders were looking at Monday morning's Nasdaq rally with bitter amusement and plenty of caution, considering how many recent rallies have been horrific failures.

While the Nasdaq 100 was sporting a near-2% surge early Monday, some traders said customers were skeptical about the rally and its potential to remain, as volume was described as tepid at some firms.

It appears that people are taking a "wait and see" view on the market, said Rod Jamieson, vice president of options at First Union Securities, noting the multitude of failed rallies lately. For example, last Thursday the NDX experienced a nice pop, only to see that go down the tubes on Friday. Today, the NDX soared as high as 1936, and is now modestly off that level.

Volume in options, as on many Mondays lately, was light, Jamieson said.

Meanwhile, there are "a lot of negatives in the market," said Joe Sunderman, an analyst at Schaeffer's Investment Research. Among those negatives, he noted that the Chicago Board Options Exchange Volatility Index, or VIX, "seems to be trending higher." Going with that trend, it could lead "to even further high levels on the VIX." Overall, the VIX moves in the opposite direction from the price action for the S&P 100. The VIX is based on the implied volatility levels of certain options on the S&P 100, or OEX.

Sunderman also cited the high number of bulls in the Investors Intelligence survey of investment advisers, and the high allocations for stocks in model portfolios being recommended by Wall Street strategists, as bearish from a contrarian perspective.

The all-electronic International Securities Exchange began listing options on the Nasdaq 100 unit trust (QQQ Quote) today, becoming the latest exchange to list the popular options, which until last week were traded solely on the American Stock Exchange.

Last week the CBOE became the first exchange to compete with the Amex for QQQ orders, and the Pacific Exchange soon followed by also listing QQQ options.

The Philadelphia Stock Exchange said last week it had reached a deal to list QQQ options. A PHLX spokeswoman said the exchange hopes to list the options this week.

iVolatility.com, a unit of EGAR Technology Capital, and a provider of historical and implied volatility data, has teamed up with Scott H. Fullman, chief options strategist at Swiss American Securities, to launch what it calls "The Strategist" page on the iVolatility.com Web site.

The page includes "strategist worksheets" to help investors analyze various trading strategies including naked put writing, covered call writing and married and protective put purchasing. Access to those worksheets costs $9.95 a month.

Fullman will provide weekly commentary and a series of educational seminars, the first of which will focus on volatility in equity option trading. He will also develop strategy scanning for covered writes, technical analysis scanning and a technical signal adviser.