Nasdaq Put-Buying Picks Up Even as Qualcomm Races Toward Target

Those who take risks, drink champagne.

Or so the proverb goes. And there are always new risks to take, this week and in the new millennium.

Volatility Index Today % Change 24.51 +0.82 Source: ILX

One bet risk-takers might make would be that the Nasdaq is set for a correction, possibly starting as early as next week. That would explain the massive put-buying in the QQQ, the Nasdaq 100 unit trust trading on the American Stock Exchange. But that hasn't held down shares in stocks like Yahoo! (YHOO Quote) and Qualcomm (QCOM Quote).

The most active QQQ options Wednesday were the January 180 put options, trading at 6 3/4 ($675), down 1 3/8 ($137.50), to the tune of over 460 contracts and open interest of 1,980. The QQQ itself was up 3 15/16 to 182 3/16.

Put/Call Ratio Today (Noon) Previous Close 0.42 0.44 Source: ILX

Meanwhile, 100-point gains in single stocks have pushed the market into farce territory, said Jay Shartsis, options strategist with R.F. Lafferty in New York. For beginners or retail investors, it's probably time to sit out of options, he advises.

For instance, take a gander at Commerce One (CMRC Quote), Shartsis added; it was down 33 to 217 Wednesday after a run-up from around 8 this past summer. "The volatility of their options was huge," Shartsis explained. "It shows us what can happen."

Not everyone has chosen to sit this week out. Michael Kelly, manager of the Onyx Capital Management hedge fund, said he's been long Yahoo! via options. The stock was up 12 3/4 to 403. But unless you're already a holder of such sizzling tech options as Yahoo! or Qualcomm, up 109 to 612, this week isn't the time to leap in.

"This market is like that song from the Kingston Trio, 'Charlie and the MTA,'" Shartsis said. "It may never come back" to levels seen this week.

"For next week, I'm thinking there's going to be a lot of money scared away by Y2K coming back into the market," Shartsis continued. "But then the Federal Reserve is going to be pulling money back out of the system as well."

There are plenty of pros who want to just lean against the ropes until the market grows tired.

That's why options trader Greg Simmons of Linear Capital Management in Newport Beach, Calif., "almost sold a 500 strike-price straddle on Qualcomm" on Tuesday for $90 ($9,000) per contract, and then didn't.

Good thing, too. That was a day before PaineWebber stuck a price target of 1,000 on the stock, sparking yet another run-up in the stock and the Nasdaq.

A straddle is the purchase or sale of an equal number of puts and calls. It's a way to make a bet on a big swing in the stock price, and hence the option price.

But the stock was too volatile even for what seemed to be a sensible bet. "I figured the stock price would hang within a hundred bucks," Simmons said. "Glad I didn't do it. Feel sorry for those who did."

Speaking of which, he's not getting back in until "there's some serious momentum on the downside."

For his part, Kelly said, "This last week might be what the world looks like when there are only daytraders."