Index Options Trades Showing Some Worries

Ahead of a key Federal Open Market Committee meeting, index options are ringing a warning bell.

Although the S&P 100 index, the OEX, is up 5.2 to 687.8, somebody was loading up on an insurance policy against or a bet on a market reversal after the news from the Fed. Action picked up in the October 670 puts, which traded more than 4,300 contracts by midmorning Tuesday, with the last price at 5 ($500), down 3/4 ($75). All that busy trading amounted to about half-open interest -- or established positions -- in that October strike price.

Volatility Index Today % Change 26.25 +2.14 Source: ILX

"This definitely looks like buying" in the OEX index puts, says Joe Sunderman, senior research analyst for Schaeffer Investment Research in Cincinnati. He pointed out that roughly 58% of trades are crossing at the "ask" price, indicating that most of the trades are purchases. "Somebody's looking for a reversal." (Buyers of puts generally are wagering on a decline in the index or stock price underlying the option.) ...