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Call-Buyers Rediscover Oil and Cyclicals

Trading in old favorites is leaning higher.

After a day of tech-related storms on Monday, oil-service options crept into view Tuesday along with the molasses-slow rotation into cyclicals and even some commodity issues.

"From an institutional standpoint, these stocks are underowned, and we're seeing some big call-buyers coming into natural gas, oil service, even steels," said the head of a large institutional options desk. He pointed to "a big buyer of

LTV Corp.


steel calls earlier in the week. It's a slow but steady rotation, especially as technology has been taking it on the chin."

Among the oil stock options, he added, "we've got

Triton Energy

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Noble Affiliates

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Newmont Mining

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on the boards today. These are the stocks that have really underperformed but make real money, with real P/Es."

The faith in such old-line companies is being reflected by at least one player in the

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Philadelphia Oil Service Index



) options. "There is one institutional call-buyer who continues to stay long and keeps rolling over its position," said a Philly index options trader.

Among the most active, oil-services firm



calls were strong as the stock rose 3/4 to 17 11/16.

Its June 15 in-the-money calls were up 3/16 ($18.75) to 2 3/4 ($275) on volume of 1,510 contracts against open interest of 2,411.

Separately, a semi-large trade of roughly 20,000


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January 2000 15 put and call options crossed the Philly floor late Monday, and options traders said a well-known investor was in the market.

"Rumor has it that a large hedge fund was in the market, possibly as part of a combination trade on interest rates," said one Dell trader, who asked not to be identified. "They were so deep in the money, though, it could have been a proxy for owning stock."

As of Tuesday morning, the open interest in that January 2000 15 series jumped to more than 33,000 and 35,000 respectively in the puts and calls, indicating the volume was an investor establishing a new position (rather than exiting an established one). The call price was 22 ($2,200) and the puts 1/2 ($50).

"This is a crowded stock. Every person in America has exposure to Dell, and the theme lately has been that PC makers are on their" posteriors, said the institutional options desk head, referring to Dell. "And not just Dell.

Gateway 2000





cut back on capacity after the Asian crisis last fall, and PCs sold since then at a good clip. Now, suppliers are raising prices, and sales aren't what they were."

Dell shares slipped 1/4 to 35 7/8.

Finally, a word on volatility in the impending realm of extended trading hours.

Paul Foster at

said today that he thinks implied volatility will go higher and the prices of options will rise in a longer trading day. "If the exchanges extend trading, there will be more time for the underlying stock prices to move and in a thinner, nighttime market," he said.

According to Foster, the less liquid nature of such a market will drive volatility and options prices higher. "The trading window for volatility gets bigger because options have to trade along with the underlying shares," he said. "And if markets are thin, panic can set in, and volatility will move along with it."