Smaller Options Plays Get Some Sun on a Postexpirations Friday

On a clear day, you can see the oddest things.

With volume thin and lots of options investors on vacation or scrambling to deal with more multiple listings, small options plays overlooked in the heat of last week's expiration are popping up like palm trees in the snow.

Volatility Index Today % Change 21.91 -1.88 Source: ILX

AutoNation (AN) options were active for the second day in a row. Friday, two big bullets hit the LEAPS market for AutoNation, a major U.S. car dealer.

On Friday, exactly 5,000 contracts each of the 2001 January 12 1/2 and January 17 1/2 calls crossed at 11:06 a.m. EDT, at 4 3/4 ($475) and $2 7/16 ($243.75), respectively.

Put/Call Ratio Today (Noon) Previous Close 0.51 0.46 Source: ILX

The trade appeared to be a "roll" by an investor into or out of the lower strike price into a higher strike, since the open interest in the January 12 1/2s totaled just over 5,600 contracts, while the number of positions opened in the January 17 1/2s totaled just 121. Rolling up means the trader expected AutoNation to at least maintain its current 14-buck share price.

On Thursday, nearly 4,900 contracts traded in the January 12 1/2 LEAPS, which are long-term options. Also on Thursday, the same number of contracts traded in the 2001 January 20 call LEAPS, at a price of 1 7/8 ($187.50). The order was split between the American Stock Exchange and the Chicago Board Options Exchange, with 1,000 contracts going to the Amex and 3,900 going to the CBOE.

Elsewhere among the most actives, South Korea Telecom (SKM) saw just over 6,000 September 12 1/2 calls cross at a steep drop in price, down 1 1/4 ($125) to 5/8 ($62.50). Despite recent activism by investors such as Julian Robertson's Tiger Management, South Korea Telecom shareholders voted against a proposal for a 50-for-1 stock split and also rejected a proposal demanding the removal of Chairman and Chief Executive Son Kil Seung from the company's board of directors. Tiger Management and a shareholders-rights group had put forth both proposals.

Listings Update

Now we return to the multiple-listings war. We checked out the spreads in Tellabs (TLAB) and Microsoft (MSFT) options, both of which were listed Friday morning by the CBOE.

Previously, those were exclusive listings of the Pacific Stock Exchange, which so far has declared neutrality in the options war. The Pacific declined to comment Friday after the CBOE said it would list 29 more Pacific- and Philadelphia Stock Exchange-listed options. Of the CBOE's 29 new options, 16 currently are exclusively listed on the PCX and the other 13 are offered only by the PHLX.

War rages on: The Philadelphia exchange on Thursday raided seven of the CBOE's proprietary listings, including heavy traders Hewlett-Packard (HWP), Merck (MRK) and Texas Instruments (TXN).

As the battle for volume raged on, price spreads on Tellabs options narrowed almost immediately Friday morning.

On Thursday, the spreads ranged from 3/8 to 1/2 on the September and October options, but after the CBOE said it would come onstream with a listing, the spreads -- the difference between the bid price and the ask price for the option -- narrowed to 1/4 or an 1/8. "We hoped [another exchange listing] wouldn't happen so soon," said John Oppenheimer, the Pacific's lead market maker for Tellabs. "But I'm sure the Pacific will respond at some level. ... By the end of the day, the doors will be blown off completely."

The Pacific has a dilemma. "If they were smart, the Pacific would drag in the Amex to this battle," said one options veteran. "Why not? They want to add to the mix, so they water down the competition. All they do is pick off the leftovers anyway. Get the Amex and CBOE into a fray, the P-Coast can stand on the sides after they list the Amex options to see what the CBOE would do. They want to survive by having them kill each other."

The CBOE has already listed Dell (DELL).

The following are the options the CBOE said it would begin trading Sept. 1:

The 15 current PCX options listings the CBOE will add include: Compaq (CPQ); Sun Microsystems (SUNW); 3Com (COMS); Applied Materials (AMAT); Advanced Micro Devices (AMD); Tellabs; Schering-Plough (SGP); McKessonHBOC (MCK); Alza (ALZA); R&B Falcon (FLC); First Union (FTU); Nike (NKE); Newbridge Networks (NN); Data General (DG); and Baker Hughes (BHI).

The 13 additional PHLX listings the CBOE will offer are Home Depot (HD); Time Warner (TWX); Fannie Mae (FNM); Abbott Laboratories (ABT); J.P. Morgan (JPM); Rite Aid (RAD); Newmont Mining (NEM); IDT (IDTI); Analog Devices (ADI); Cambridge Technology Partners (CATP); General Instrument (GIC); Comcast Class A (CMCSA); and Sprint (FON).

>To order reprints of this article, click here: Reprints