Options investors were riding the wave of renewed call-buying today in a post-expiration rush to establish new positions, but the wave led some options pros to predict a pullback later this week.
"I'm seeing a lot of call-buying in a lot of the big names," said John Hayes, options strategist for
. "Personally, I think there ought to be a little more call-selling, but they're buying."
TheStreet.com Internet Sector
index posting a significant comeback and the
bouncing up today, it was hard to contain the happiness. "I think there is too much call-buying going on," said Jay Shartsis, options strategist for
. "But with the way the Internet sector has stabilized, it really shows that the market has a lot of short-term power."
The renewed activity was due in a large part to Friday's expiration, as many investors moved to put on new positions in the old favorites, such as
One big player was going long without buying out-of-the-money calls. Indeed, it looked as if someone was setting up some long-term put strategy on Microsoft as 10,000 contracts of 2002 January 65 LEAPS traded against open interest of 5,505 contracts.
The big trade went out around 6 1/2, or $650 per contract, making it a $6.5 million play. The trade likely was initiated by a put-seller taking in the hefty premium against the chance that Mister Softee wouldn't come down too far from the mid-80s. The stock was strong today, up 1 9/16 to 86 9/16.
Another action center was
, which plans to split 2-for-1 at the end of trading today.
Investors were flocking to Cisco's calls as the stock rode up 2 3/4 to 122 1/8 in anticipation of the split. Heaviest were Cisco's in-the-money October 110s and 120s, which traded 8,944 and 8,905 contracts, respectively.
Here's one illustration of the danger of playing the merger rumor game. Investors who had been buying into some speculative out-of-the-money calls on
may be feeling a little burned this morning after the long-rumored target finally got a takeover bid that was lower than they expected.
Saville, an Irish company that provides telecom and energy companies with customer-billing service, announced a $700 million takeover bid from
Under terms of the stock swap, each Saville share will be valued at 0.358 of an ADC share.
That may be a problem for the investors who snapped up Saville's August 20 and 25 calls
earlier this month when the stock was around 17. Today, ADC's stock dropped 3 /14 to 46 7/8, making Saville shares worth about $16.78 each. Saville's shares dropped 1/4 to 15 3/8.
The August 20 and 25 calls, so hot a few weeks ago, saw their prices dive between 50% and 75% today as investors adjusted to the terms of the proposed deal.
The August 20 calls fell 15/16 ($93.75) to 9/16 ($56.25), and the August 25 calls plummeted 3/4 ($75) to 1/4 ($25).
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