AOL Options Trades Keep Stacking Up

Speculation on the Internet giant remains strong as market jitters continue.
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Jot this down in your interactive diary: a few more waves of activity Friday in

America Online

(AOL)

October calls, this time in strike prices closer to where the Internet behemoth's stock is trading.

That's not surprising, given that Net stocks seem to be the only ones holding their own in Friday's uncertainty ahead of a key

Federal Open Market Committee

meeting next week.

Three more big trades crossed on the

Chicago Board Options Exchange

in AOL call options, at about 3,000 contracts apiece in the October 100, 105 and 110 strike prices. The prices ranged from 9 1/4 ($925) to 6 ($600) to 3 3/4 ($375), respectively.

Earlier in the week, AOL's 110 calls, for instance, were trading at 5 ($500), when the stock was trading at 109. By Friday, those same calls were trading at 3 3/4 ($375) with the stock at 106 and change. All three trades, by the way, crossed on the CBOE, which has been lobbying institutional option customers to send orders its way in the ongoing war for market share in popular contracts such as AOL.

Away from the Net and back in reality, chartists are confounded. Internals are poor, but sentiment is becoming so bearish in options-land that usually contrarian traders are starting to think there might be a short-term rally in the works.

"Are we already in the middle of a correction? There's no question. The market topped out a long time ago. It's a question here of are there enough bears? Are enough people scared to have sold already in October? That's the job of the technician. It's a tough determination," said Jay Shartsis of

R.F. Lafferty

in New York.

Shartsis is on the spot with his

prediction 55 days ago that there would be a correction following the expiration on the tail end of the stock market's peak.

Meantime in the noisy

S&P 100

index, or OEX, trading pit in Chicago, serious concerns seem far away. The OEX is trading at 666.5, down 5.8, and the market's fear thermometer, the CBOE's

Volatility Index

, hasn't cracked 30 for awhile. "There's still a sense of complacency," said one OEX floor trader. "Everyone's afraid of missing the up moves; no one wants to be caught owning puts," generally bets the market will fall. "So you have people lightening up their put positions" betting on the OEX. And remember, OEX traders rarely hang on to a position for long. "Hey, we're the original daytraders," said one.

To quantify sentiment about rates, he added, "the percent of people who assumed nothing was going to happen with rates has now dropped from 95% to 80%. People just aren't so sure now."

At-the-money OEX options showed a bias towards the downside Friday, with the 665 puts up 2 ($200) to 11 1/2 ($1,150) and the 665 calls down 3 ($300) 3/4 to 13 3/4 ($1,375).

Whatever overall concerns some traders have, speculators found their way to some individual option names such as cable company

RCN Corp.

(RCNC)

, marketing and advertising giant

Young & Rubicam

(YNR)

and waste disposal firm

Allied Waste

(AW)

.

RCN calls were getting bid up across the strike prices, even though the stock was down 1 1/4 to 39 5/8. October 40 calls gained 3/16 ($18.75) to 2 15/16 ($293.75) and the 45 calls gained 1/16 ($6.25) to 1 3/8 ($137.50). That could mean there's some upside potential out there.

Young & Rubicam stock was down 1/2 to 43 1/2, and a 500-contract order for the November 45 puts crossed at a price of 2 ($200). There was no open interest in that strike price before the trade, so if there's a bearish feel to the stock, it's seeping into the options.

Though its stock was on the uptick, 1/16 to 11 3/4, an Allied Waste option investor set up a new position in November 10 puts. That position, about 120 contracts, opened up at a price of 3/8 ($37.50), up 1/8 ($12.50).

Whither

ePIT, the Internet-based virtual exchange? Well, they turned up in the heartland. The

Minneapolis Grain Exchange

and San Francisco-based

ePIT

said Friday that they are negotiating a joint venture to launch an Internet trading system for commodities.

The Minnesota exchange's board of directors unanimously approved the move at a meeting Sept. 25. Subject to the approval of the

Commodity Futures Trading Commission

, the MGE will be the first U.S. self-regulated board of trade to use the Internet to operate a virtual trading floor with global reach.