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Call-Options Buyers Keep Coming to Philip Morris

But has the Fed cut halted the rise of this defensive stalwart?

By the way investors have positioned themselves in

Philip Morris

(MO) - Get Altria Group Inc Report

options, they're betting that the stock, which soared a whopping 93% in 2000, has more upside juice in it, at least in the short term.

Some options pros, however, are cautious on Philip Morris, thinking that it's seen its best days. That's because if investors believe the market has set a short-term bottom, Philip Morris and other defensive stocks will have finished their run, says Jay Shartsis, options strategist at

R.F. Lafferty

in New York. That larger issue is at the heart of the debate.

Philip Morris stock was beaten up last week in the wake of the


interest rate cut. One of the reasons the stock rallied in late 2000 was thanks to evidence of a slowing economy and fears of a recession. The stock was viewed as a haven for investors under those circumstances. (

also took a

detailed look at Philip Morris in December.)

Investors bet that with the economy slowing, and even if a recession does take hold, people are still going to smoke, eat and drink beer. And Big Mo has all that covered, with brands including Marlboro cigarettes, Kraft and Nabisco food products, and Miller beer. In times of an economic slowdown or recession, the technology and other growth stocks investors learned to love over the past few years are expected to falter.

Shartsis believes the stock topped out at $46.50 on Jan. 2 That price is Philip Morris' 52-week intraday high. The stock rose 62.5 cents, to $44, on Wednesday afternoon.

Open interest (the number of contracts in existence) in January

options on Big Mo is heavily weighted to calls, used to reflect bullish sentiment about a stock. That means investors are expecting that Philip Morris stock is going to continue the rally it enjoyed in 2000. Arguably, a good deal of that open interest could stem from options investors who bought the options some time ago as long-term equity anticipation securities, or


A call option gives the buyer of the call the right but not the obligation to buy the underlying security for a certain price by a certain time.

The January 35 calls and the January 40 calls had open interest of 48,790 and more than 38,897 contracts, respectively, as of Tuesday's close.

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As for out-of-the-money calls, there is notable open interest in the January 45 strike, with 34,139 contracts, while the January 50 strike had open interest of 11,055 contracts as of Tuesday's close.

While there is significantly more call open interest overall than put open interest (A put gives the purchaser the right but not the obligation to sell the underlying security for a specific price by a certain time. Investors buy puts to speculate on a downdraft in the underlying security, or as protection against a long position.), there is a sizable amount of open interest in the out-of-the-money January 35 puts, with open interest of 27,680 contracts. Much of that came Jan. 3, when the Fed slashed interest rates, and defensive stocks quickly, albeit temporarily, fell out of fashion.

Philip Morris' stock made its most impressive gains late in 2000. The stock took off big time beginning in late September, in part on hopes that Republican

George W. Bush

would win the White House. Investors saw him as being more kind to tobacco companies than Democrat

Al Gore


Investors also have been enamored of Big Mo's dividend: Its latest was 53 cents a share.

Overall, some analysts believe that Philip Morris is also a value at current levels. Philip Morris'

price-to-earnings ratio is about 11.9, based on the nine-analyst

First Call/Thomson Financial

consensus earnings estimate of $4.09 a share for 2001. Others, however, see the stock as priced to perfection.

"It's priced with no errors," says Paul Foster of

in Chicago, who sold his Philip Morris stock a couple of weeks ago. Its Friday level failed to entice him. "I'll buy it lower," he said.

One options firm, however, thinks there's a positive road ahead for Big Mo.

"We're bullish on Philip Morris," says Joe Sunderman, an analyst at options firm

Schaeffer's Investment Research

, in part, he says, because Big Mo has been a relative strength leader. Sunderman says his firm is long January call options on Big Mo.

Along with a lot of other people, too.