Bears Move In on OEX Index Puts in Face of Triple-Witch

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The shakeout in the overall stock market today meant that options traders were again staking their bets on blue-chip index puts, as activity in the

Standard & Poor's 100

(OEX) and

Dow Jones Industrial Average

(DJX) was strong. With just a week before this month's triple-witching expiration, options traders were still busy in the June strike prices, apparently adding to their positions before expiration on June 19.

With the OEX at 533.55, down 6.25, the June 535 index puts were the most active, trading more than 12,840 contracts. Also seeing action were the June 540s and 520s, with about 11,730 and 7,830 contracts trading, respectively. Michael Schwartz, options strategist for

CIBC Oppenheimer

, said it appeared that many of the trades today were new positions, as investors were adding to their holdings ahead of the triple-witch. "The 540s moved more than 10,000 contracts against only 16,000 in open interest -- that's very intriguing."

Schwartz said he was watching the development of a put-bear spread on the OEX between the 540 and 535 index puts -- both of which are in-the-money. All this activity is a strong signal that traders are betting on a continued downturn, he added. It appeared that much of the action in the index puts was caused by traders buying the June 540s at around 9 and then selling the June 535s at around 7 to create a spread between the two prices. "They are taking a $2 deficit now, but if the OEX stays below 535 by expiration, they will win big," Schwartz said.

Corresponding index call activity picked up in the late morning, with the June 540s moving 11,385 contracts and the 545s moving 6,445. Activity also was ripe in the OEX June 550 and 555 index calls. Pricing on the calls and puts moved in almost polar opposition, as calls dropped in price and puts rose.

Joe Sunderman, senior research analyst at

Schaeffer Investment Research

, agreed that these new positions indicated that market players were not through with the June strike prices yet. "I think people are still watching the Asian fears and how they'll affect the market," Sunderman said. "The thoughts of triple-witching are not intruding yet."

With the Dow down more than 100 points this morning, the DJX June 86 index puts moved more than 6,000 contracts -- an unusually high number for this index. The DJX index was 88.72, down 1.

In corporate option activity,

Dell

(DELL) - Get Report

marked its last day on the

Philadelphia Exchange

with some activity. Dell's options will begin trading on the

American Exchange

tomorrow. The computer company saw action in its long-range, out-of-the-money puts. More than 5,000 November 55 puts moved at 2 1/8, and a corresponding number of '99 January 55 puts moved at 3. Both trades went out at the ask price, indicating someone likely was buying these options. Dell's stock was at 83 5/8, down 1/8, today.

In other corporate activity:

Also on the Philly,

General Instrument

(GIC)

saw almost 5,600 contracts of its June 22 1/2 calls trade at 1 3/8, or $137.50 per contract. It was likely that the move was made to close out a previous position, because there were 8,551 contracts in open interest. General Instrument, based in Horsham, Pa., provides analog and digital systems to cable and satellite TV networks. Its stock was at 23, down 3/4, this morning.

Another new position -- this in oil well servicer

Schlumberger

(SLB) - Get Report

-- saw a big play in its in-the-money August 65 calls, moving more than 4,000 contracts at 8 3/8. The trade came against only 1,422 contracts of open interest. Schlumberger's stock dropped to 70 7/8, down 2 13/16, in midday trading.

MCI

(MCIC)

saw 3,685 contracts in its June 50 calls move this morning at 1 3/4 in what looked like buying pressure. That move could mean someone believes MCI will hit 51 3/4 within the next 10 days. However, since the telecom company has seen strong put-buying activity over the past few days, it is also possible that someone was just seeking to hedge a previous bet. This morning, MCI's stock dropped to 49 11/16, down 7/16.

Yesterday,

Cable & Wireless

(CWP)

, a U.K. rival, filed a lawsuit against MCI. Cable & Wireless wants MCI to live up to the agreement MCI made last month to sell its Internet operations to the British company.

WorldCom

(WCOM)

, which plans to merge with MCI, also saw a big call bet in its June 45s, moving 5,870 contracts at 1/4, or $25 per contract. The options traded at the ask price, indicating someone was looking to buy. Shares of WorldCom were at 43, down 1 1/16, in midday trading.