The bear-market case is dead, and a rate hike isn't in the cards. At least, that's what some options strategists are speculating, pointing to a stunning pullback in prices of options stretching into the year 2000.
Floor traders price volatility into options with a dual purpose: as a measure of risk and uncertainty and of demand for an option. (For instance, if demand for a certain name is rising, floor traders will price in more volatility to reflect that demand.)
Typically, traders watch implied volatility in the
index, or SPX, a level that has fallen briskly in some of the options that expire in 2000. Primary among those, for instance, would be the SPX March 1300 calls, where volatility has dropped to 24.3 Tuesday from 25.6 on Nov. 3. March 1325 calls shed roughly 1.2 percentage points of volatility, down to 23.5 from 24.7 on Nov. 3.
Volatility "has clearly come in over the past several days, and it's been a significant item," said Michael Kelly with
Onyx Capital Management
in New York. "It could be due to people being full-up, but over such a short term, it's usually not supply-demand. A week is considered a quick drop, so it would seem to indicate a shift in sentiment."
The S&P is down 11.6 to 1365.4; March 1325 calls are fetching 121 ($12,100), up 8 ($800).
"People had been bidding up volatility in longer-dated options, and now they're not, on a perception that the
won't raise rates," he added.
"With bonds having rallied, people are asking themselves, 'Why should I suffer the time decay and price deterioration of options?'" remarked Kyle Rosen of
Rosen Capital Management
. He pointed to volatilities in S&P 100 options dated six months and longer, down to 30 from 40.
"There's just nothing lurking out there anymore; the question is, do we go down 5% and rally, or if not, do we just grind higher? Either way, people just don't want to pay for these long-dated options at any price."
Among individual options Tuesday,
again was the subject of takeover chatter
Monday, but the rumored acquirer,
, came out with
news Tuesday unrelated to any acquisition.
Though the stock price was up 11/16 to 11 3/4, Beyond.com's November out-of-the-money call options were actually down in price, with the November 15 calls, for instance, down 1/8 ($12.50) to 3/8 ($37.50).
It seems those willing to wager on a buyout of Beyond.com are moving into December-dated options, with the December 15 calls up 1/8 ($12.50) to 15/16 ($93.75).
call options were rocking again Tuesday, with another big buyside order in the November 30 calls, to the tune of 3,600 contracts.
According to a 3Com market maker on the
options floor, "We've had the same customer coming back for more, and the only thing we can come up with is that the
ruling could be positive for 3Com's
" product line.
3Com stock was up 1 1/16 to 30 7/8. The January 45 calls were up 3/16 ($18.75) to 5/16 ($31.25) and the November 30 calls gained 11/16 ($68.75) to 1 9/16 ($156.25).