Options Pros Say It's Too Late to Go Short

If traders missed out on taking a short, or negative, position on the market, it might be too late to try, according to some options market pros.

Volatility Index
Today	% Change
33.80	-0.09
Source: ILX

Although many of the widely followed stock market indices continue to stumble, much of the focus has been on the decimation of the Nasdaq 100. The NDX has managed to come off its session lows, but is still a bit in the red, which has been its location for a long time. The NDX fell 8, or 0.4% to 1812. Earlier in the session, it hit another 52-week intraday low, bottoming (for now at least) at 1530.14.

Nasdaq Volatility Index
Today	% Change
73.09	-0.18
Source: ILX

The Nasdaq is on a "fast track to zero," quipped Jay Shartsis, options strategist at R.F. Lafferty. "The mood is beyond bearish. It's shellshocked."

Shartsis said it was "kind of late to go short," and that perhaps people should consider taking selective long positions. One long positions he has is in EchoStar Communications (DISH Quote - Cramer on DISH - Stock Picks), a direct broadcast satellite company. Shares of EchoStar rose 75 cents to $28.69.

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Call option volume was robust in American Express (AXP Quote - Cramer on AXP - Stock Picks) in the wake of a report by Gene Marcial in Business Week that says the company is being eyed by Citigroup (C Quote - Cramer on C - Stock Picks). The column also mentions that Morgan Stanley Dean Witter (MWD Quote - Cramer on MWD - Stock Picks) and American International Group (AIG Quote - Cramer on AIG - Stock Picks) are interested in AmEx, the credit card giant. Shares of AmEx rose $2.39, or 6%, to $41.35.

This isn't the first time that AmEx has been mentioned as a takeover target. In early February, AmEx options volume exploded on rumors that the company was going to get bought. As with many rumors and speculation in the market, nothing came of the AmEx chatter.

It looks like people are taking a shot today, however. The April 40 calls were seeing a decent amount of interest on the Chicago Board Options Exchange, with more than 1,100 contracts trading. The calls rose 1.50 ($150) to 3.20 ($320).

Paul Foster of 1010WallStreet.com in Chicago said that implied volatility on AmEx options has risen modestly, but not a great deal today. Before the open, the implied volatility in the April 40 options was 53-55, while it was at 57 late in the morning. He pointed out that implied volatility was much higher at points earlier in the year.

"I'm not going to buy it today on a Business Week [story]," Foster said. He did add, however, he will be watching AmEx more intensely. "There's a story there."

He said it's tough to buy April options with three weeks until expiration unless you have strong conviction on the underlying stock. The time decay in the options will increasingly tumble as expiration approaches.