Call-Buyers Retreat as Market Slips

AOL and Time Warner are among the bust plays today.
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The first sluggish day in what seems like quite a while had options players pulling back on their call-buying, but still not sure enough of a sustained downtrend to plunge headlong into puts.

With major indices waning and the


bleeding, the put/call ratio moved up again to indicate that some bearish sentiment was creeping into the market. "This is the first real hit on the downside we've had amid an unprecedented speculative buying binge on the part of the public," said Jay Shartsis, options strategist for

R.F. Lafferty


Call-buying, a bullish bet that stocks will continue higher, has been heavy over the past few weeks, Shartsis said, and was only starting to slow down today.

Among the heaviest-played stocks in the options arena,

America Online


continued to rule as option traders playing Monday night's stock split drove action Tuesday. AOL's mixed bag of news -- it split and then announced a new deal with


(INTU) - Get Report

to offer an online bill-paying service to customers -- waged a war on the stock price, which was down 2 1/8, to 79 9/16, at midday.

However, the split gave options investors a whole new slate of bisected strike prices to play with, and they were jumping into them with aplomb. Heaviest were the new out-of-the-money December 82 1/2 calls, which saw about 1,400 contracts trade. The December 77 1/2s and 72 1/2s, both puts and calls, were also active.

Also active were the in-the-money December 70 calls, which moved 5,830 contracts at around 10 ($1,000). The price was increasing, up 2 1/2 ($250) per contract, even though AOL's stock was dropping. And at least one bearish trader may be thinking AOL is not done sinking.

About 2,000 December 75 puts moved against open interest of just 172 contracts, and looked to be trading under buying pressure. The move could be a hedge against a large position in the stock, but it also could mean that some bearish sentiment was seeping into the Internet bellwether.

Despite the action in the new strikes, a lot of options traders actively playing AOL over the past few days were sitting on their hands today, however, perhaps afraid of taking new positions in a declining stock, said Tom Stotts, options strategist for

Dain Rauscher

. "There's a lot of holding out there today," he added.

Speaking of declines,

Time Warner


saw some put action as the stock continued to slide after Monday's downgrade of the stock by

Merrill Lynch's

Jessica Reif Cohen.

A whopping 5,100 contracts of 2000 January 60 puts moved against just 1,811 contracts of open interest. The new money seemed to be betting that Time Warner had a little further to fall. The stock, which was above 66 when the downgrade hit, continued to drop today, falling 1 5/16 to 60 15/16. One possibility, of course, was that the buyer was a large institutional player who wanted to hedge further decline in his or her stock holdings, Stotts offered.

One stock fighting the trend was



. Fresh from settling lawsuits over misstated earnings, the database software company continued to see active call-buying in its near-the-money and out-of-the-money call options as investors played a hopeful bottom.

Informix announced last week that a California court had approved the settlements, which stemmed from alleged misreported earnings between 1994 and 1997. The stock has climbed 70% since mid-October and was down 5/16, to 11 1/4, at midday.

Most active among the calls were Informix's December 12 1/2s, which moved 535 contracts at 9/16 ($56.25). That would mean buyers would need another 20% run-up by Dec. 17 to make today's purchase worthwhile.