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AOL Buzzes, but Rest of Tech Sector Grows Silent

Despite the rabid activity in AOL today, most Net and tech options are becoming too pricey to play with.
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Well, tech stocks' day out of the limelight didn't last. After a big biotech deal -- announced Tuesday -- took option investors' attention away from the sector yesterday, three tech companies stirred up interest with a hat trick of announcements.

America Online


, which yesterday after the close reported fourth-quarter earnings 3 cents a share over estimates and announced a 2-for-1 stock split, was seeing the heaviest activity. AOL was active yesterday ahead of its earnings release, and the activity continued today.

In fact, yesterday's investors were today's winners as AOL's stock continued its climb, moving up 8 1/4 to 173 3/4. And that was great news for yesterday's call buyers, who had bet heavily on expectations of an upside surprise, with the heaviest action in the February 160 and 170 calls, which yesterday traded 4,810 and 4,521 contracts, respectively, on the

Chicago Board Options Exchange

. The Feb 165 and 150 calls were also active yesterday.

Those same call strike prices were seeing about the same level of volume by today. However, more interesting was the price of the calls, which were expensive yesterday and continued to climb with the stock today. For example, yesterday, the most active February 160 calls went out at prices that reached 13, or $1,300 per contract. Today, those same calls are 19, or $1,900 per contract -- a gain of more than 45% in a single day. A similar one-day gain, in the range of 40% to 48%, was seen in all the near-the-money calls.

However, AOL proved to be an anomaly today. Throughout the rest of the tech sector, high prices and some nervousness were keeping investors at bay, at least in options.

"We're seeing less activity than normal in the options market today," says Leon Gross, an options strategist at

Salomon Smith Barney

. That more subdued feeling could be seen somewhat in the other two active techs that were in the news today,


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Intel, which also announced a 2-for-1 stock split and raised its quarterly dividend today, was seeing some action in its front-month options, but it was nowhere near the open interest level.

And of course, there was the Internet merger of the day -- Yahoo! agreed to buy Web site community



in a stock swap. Despite the surge a merger announcement brings, Yahoo! was only seeing intermittent option activity. Most active were its July 360 calls, which traded 1,105 contracts against only 101 open interest contracts. (Geocities does not trade options.)

The calls were dropping in price, even though the stock climbed 15 7/16 to 350 3/4. That could indicate the investor was executing a buy/write, buying stock and writing calls to taking in the premium (about $1 million) as a hedge.

"Stocks are jumping so high on any news of a merger, earnings or a split that I don't think the average person can pay these prices for either the options or the stocks," says Scott Fullman, chief options strategist at

Swiss American Securities


The buying is largely being done by shorts who are covering or by speculators, Fullman explains, but they can't form a foundation in the stock like the legion of online buyers that are probably getting priced out of these tech stocks. "The volume is starting to die down," he adds. "This going out and buying everything they can get their hands on -- we aren't seeing that anymore like we used to."