Amex, CBOE Ring Up Big FON Calls

Now that Sprint (FON) and other listed options can trade on more than one exchange, big institutional options customers are exploiting the competitive climate faster than you can change your long-distance plan.

A big trade in Sprint October 50 calls Friday illustrated just how razor-thin prices have become for popular listed options and how "it's a great time to be a customer in options," according to the head of one New York-based institutional desk.

Volatility Index Today % Change 22.42 -04.19 Source: ILX

Much like big long-distance companies pestering people at dinnertime, options exchanges have been lobbying big institutional desks for options business. "It's important for exchanges to win the order flow, to have the customer switch over, so they're willing to bargain on price," the desk chief said, somewhat gleefully.

A total of about 11,700 October 50 calls traded in Sprint, but the order was split between three exchanges -- 4,371 on the Chicago Board Options Exchange, 5,316 on the American Stock Exchange and 2,133 on the Philadelphia Stock Exchange. (Open interest in the strike totaled about 17,100 prior to this trade.)

Put/Call Ratio Today (Noon) Previous Close 0.36 0.45 Source: ILX

In all cases, the bid for Sprint calls was 3 ($300), and the last sale 3 1/8 ($312.50) or 3 1/4 ($325).

"The orders came through in 1,000-contract lots and from a few different buyers, and the crowd was selling the calls. It was really scattered all over and hard to say whether the buyers were establishing a new long position or buying back a short position," the New York desk chief said. Sprint's stock was up 3/8 to 47 3/4.

Same thing with Philip Morris (MO), a stock that goes ex-dividend on Monday and that has experienced heavy options trading this week.

"It's a dividend capture play," said a trader at the Pacific Exchange. As for capturing order flow, he added, "that takes time." Another large block of September 32 1/2 calls crossed on the Amex on Friday, at a price up 3/4 ($75) at 6 1/8 ($612.50).

Among other most-actives, a big seller in Tellabs (TLAB) split an order between the Amex and the Pacific for the December 47 1/2 puts. "It's a normal trading day, and there's no panicking that they're going to be doing a merger again or anything like that," said a trader with Oppenheimer Noonan & Weiss on the Pacific Exchange trading floor. "It's real out-of-the money and probably just some protection." Puts are bets that a stock price will fall; often investors will purchase them as a hedge against a stock they hold in their portfolio in size.

The December 47 1/2 puts traded for 1 9/16 ($156.25) and 1 13/16 ($181.25), respectively, on the Amex and Pacific. On Internet message boards rumors had been circulating that Tellabs and Ciena (CIEN) might try a reprise of their failed merger of last year.

Lastly, a trade in energy company Vintage Petroleum (VPI) drew some notice with what looked to be a sale of November 10 puts, 975 contracts at a price of 7/16 ($43.75), down 3/16 ($18.75). The puts were sold even as the stock dipped 7/16 to 14 9/16 Friday. Earlier this week Vintage estimated cash flow in 2000 at $185 million, or $2.85 a share, if oil prices stay at $20 a barrel.

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