Call-Buying Volume Remains Constant Amid Flatlining Market

With the equity market doing its best impression of the '80s Aussie group Men at Work -- smashing effort, then weak follow-through -- options investors were left wondering how to play a mixed Friday just a week before expiration.

So, of course, they bought calls with abandon.

Volatility Index Today % Change 24.09 +0.63 Source: ILX

"The market has been on a roller coaster, but the only constant has been that equity call volume has been huge," said Jerry Hegarty, of Cape Market Research. Yesterday, in fact, the put/call ratio hit its lowest number ever, Hegarty noted. That means any negative sentiment is almost nonexistent, he said, cautioning, however, that call activity is overdone and will most certainly run out of steam soon.

Put/Call Ratio Today (Noon) Previous Close 0.27 0.32 Source: ILX

Until then, heavy hitters in technology, such as Dell (DELL Quote), will continue to attract the attention of options players. Dell was climbing 6% to 53 9/16, up 3 1/8, today after PaineWebber upgraded the company to buy from attractive.

Busiest were Dell's in-the-money March 45 calls, which moved 15,000 contracts, as investors closed them out ahead of expiration. The calls jumped in value 60% to 8 5/8 ($862.50).

Investors also go into Dell's April 60 calls, trading 4,700 contracts against open interest of just 1,497 contracts. With the 60s going at 1 1/2 ($150) that meant that investors were confident Dell would climb about 15% within the next five weeks.

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With one week before options expiration, some rollover activity was occurring. For example, an investor rolled 3,900 contracts of Cendant's (CD Quote) March 17 1/2 calls into 3,575 contracts of the May 17 1/2s.

Oddly, the May strikes seemed a little cheap considering the time element. The contracts cost the investor 2 7/8, ($287.50), even though they were already in the money by 1 point. That means Cendant would have to climb 10% anytime over the next two months to make the trade a profitable exercise. Today, Cendant was climbing almost 8% to 8 7/8, up 1 3/8.

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The speculative play of the day may be Columbia Laboratories (COB Quote), a Florida pharmaceutical company that looks to be experiencing some of the wild ramping that its highflying biotech brethren have seen.

The stock has moved up almost 160% in the last month on little news, hitting a new intraday high of 18 3/4 today from a close of 7 1/4 on Feb. 10.

That momentum has reverberated into the company's call options over the past few days, as at least some investors think the run will continue. The April 20 calls, active yesterday, traded 200 contracts this morning -- the most active strike by far in the seldom-traded options of Columbia Labs. The March 20s, which expire one week from today, were also active, moving 155 contracts.