Amazon.com's Earnings Report Sends Options Reeling

Also Case, New Holland and Merrill Lynch figure large in the day.
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It's a jungle out there in the

Amazon.com

(AMZN) - Get Report

options.

While the rest of the stock market world has been holding its breath ahead of Congressional testimony by

Fed

Chairman

Alan Greenspan

, options traders in Amazon were having their heads handed to them after the Internet blue-chip reported results late Wednesday.

"Basically,

Amazon CEO

Jeff Bezos

was apparently boasting that the company was going to lose even more money. In the past, that's made the stock go up, right? But no one wants to hear that anymore," says one Philadelphia-based options trader.

TheStreet.com Internet Sector

index was down 14.40, or 2.34%, at 600.91. Amazon was one of the biggest drags on the sector, down 16 7/16, or 13%, at 109.

America Online

(AOL)

was off 3 1/16, or 2.7%, at 112.

Amazon was

downgraded by

Bear Stearns

after meeting expectations with a loss of 51 cents a share. Analyst Scott Ehrens said the $300 million Amazon will spend over the next two years to expand its warehouse capacity will inevitably hurt the bottom line, even if an expansion is in the company's long-term interests.

"If you sold Amazon puts before earnings, you were a big loser," says the trader.

On

Monday, here's where Amazon options were trading ahead of the earnings release: August 130 calls were selling for 13 3/4 ($1,375) and the 130 puts at 10 1/2 ($1,050); August 145 calls were trading at 6 7/8 ($687.50) and the August 115 puts at 4 5/8 ($462.50).

By Wednesday, those August 130 calls had dropped to 3 1/8 ($312.50) and the 130 puts spiked to 22 ($2,200). August 145 calls fell to 1 1/4 ($125) and the 115 puts to 11 5/8 ($1,162.50), a gain of $700.

Meanwhile, in the index options pits,

Goldman Sachs

was said to be a heavy seller of

Standard & Poor's 500

index 1370 puts to the tune of 4,000 contracts. Total volume was 6,140 contracts, compared with open interest of a scant 365 contracts. The puts crossed at 32 1/2 ($3,250), up 9 1/8 ($912.50).

"If that's the case, it sounds like Goldman's either getting bullish or has made a lot of money on the downturn already," says Greg Simmons, options specialist and head of

Linear Capital Management

in Newport Beach, Calif. The S&P 500 was down 20.45, or 1.48%, to 1,348.84.

Is he concerned about the explosion in the VIX, the

Chicago Board Options Exchange Volatility Index

and a broad measure of worry in the market? "The market's built in a relatively sufficient degree of fear now. With the VIX up another 10% today, this may carry us down to another 20 or so S&P points. But it will have washed out on the selling when and if the S&P hits 1340 level by week's end." If volatility burns up to near or at the 30 level, "I'd become bullish and look for a bounce," he adds.

Among individual issues,

Case

(CSE)

call options rebounded Thursday after a rumor circulated the previous trading session that arbitragers were afraid its $55-a-share buyout by

New Holland

(NH) - Get Report

wouldn't go through. Late Wednesday, Case shares fell to 44 1/2, down 2 15/16, and the August 45 and September 45 call prices collapsed. August 45 calls fell 1 1/4 ($125) to 1 3/4 ($175) and September 45 calls fell 1 11/16 ($168.75) to 2 7/16 ($243.75).

By Thursday, however, those prices had rebounded to 2 1/2 ($250) and 3 3/8 ($337.50) respectively. The farm equipment company's stock price was back up 2 3/8 to 46 1/8. "I think there were some inexperienced traders in the market," says Paul Foster with

1010WallStreet.com

in Chicago. "Ultimately, we believe the deal with go through."

Lastly,

Merrill Lynch

(MER)

options were active for the second session in a row. With the stock up 1 5/16 to 74 1/4, the August 80 calls gained 5/16 ($31.25) to 1 3/8 ($137.50). On Wednesday, a late trade in Merrill LEAPS -- Long-Term Equity Anticipation Securities, or far-looking options -- crossed in the afternoon at a price of 3 5/8 ($362.50), up 1/8 ($12.50); volume totaled 3,200 contracts in the 2001 January 45 puts. Open interested totaled just 917 contracts.