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Cendant, Limited See Action as Rollovers Pick up and Expiration Looms

Taking a cue from the stock market, the options market today grew more subdued as traders and strategists slowly began their rollover plays as double-witch (stock and index options) expiration loomed at the end of the week.

"Expiration may not have that big of an impact this week unless the market goes up a great deal in the days remaining and triggers some arbitrage buying programs," said Larry McMillan, head of the eponymous

McMillan Analysis


Even some routine rollovers, however, gave some indication of option-trading sentiment. For example, option investors may be thinking a recovery for battered



may not come until the end of summer. A large calendar spread -- rolling the near month into the next month -- of the company's June 25 calls into its August 25 calls indicated good news for Cendant still could be months away.

Early this morning on the

American Exchange

a large trader sold about 5,660 contracts of June 25 call options, then bought a corresponding number of August 25 calls. With Cendant at 23 11/16, up 1/8, by midday, the calls were cheap with the June 25s at 1 and the August 25s at 2 1/4. The fact that the trader rolled over the calls into August without ratcheting up the strike price -- for example, buying August 30s or 35s -- and was already willing to roll the June calls now may mean there is some belief that any rebound for the company will be slow.

On the

Chicago Board Options Exchange

(CBOE), about 2,000 contracts of June 25 calls and August 25 calls moved, possibly to hedge the same trade or for further calendar spread activity. One options strategist suggested the action in Cendant was simply someone trying to boost the price of the stock, which has dropped sharply since the company announced accounting irregularities and its plan to restate earnings last month.

In other activity, the usual suspects led the slow day.


(IBM) - Get Report

was seeing plenty of action, as usual, as several call/put spreads moved in the company's May 115s, 120s, 125s and June 110s as the stock held at 117 11/16, down 1 5/8, by midday. The longer-term play, the June 110s, likely represented a slightly bearish play on the stock since it appeared the trader was selling the calls and buying the puts. About 3,775 call contracts were sold at 10, or $1,000 per contract, and the June 110 puts moved 4,455 contracts at 1 3/8.

Hewlett Packard


was also seeing some rollover action, as about 6,600 contracts in the expiring deep-in-the-money May 55 calls were rolled much farther down the line as an almost identical number of '99 January 55 LEAPs also traded. Hewlett was at 77 3/8, up 11/16, by midday.

In other company activity:

In what may be a play on takeover speculation, about 3,900 contracts in the June 40 calls of



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moved this morning at 1 1/16. With Vantive's stock trading at 31 5/16, up 1/16, the bet counts on a 27% climb in the stock in only one month.

Vantive, one of the more low-profile software makers, designs and markets customer service software. The Santa Clara, Calif.-based company has a market capitalization of around $815 million. Last week, Vantive named a new chairman, William Davidow, to replace Roger Sippl, one of the company's founders.

The up and down cycle of the stock, which hit a 52-week high recently at 39 3/4, is now in the downtick, although merger rumors often flare up. In fact, the Internet chat rooms have been talking up a merger deal between Vantive and



, a much larger software rival.

However, Joe Sunderman, senior research analyst at

Schaeffer Investment Research

, dumped cold water on the speculation, suggesting this could simply be a call/write play or a hedge against a sale of the common stock. "You can't tell for sure, but unless someone knows something about a takeover, this is a huge speculation," he said.

Vantive has an extremely high implied volatility of 81, Sunderman explained. Investors behind this play are likely anticipating the stock's downtick to continue and these calls to expire worthless next month, he said.

Another odd notable was a put option play in the



, which saw two blocks totaling 2,655 contracts move in the retailer's May 40 puts. With the stock at 33 3/8, the puts went out at their intrinsic value of 6 5/8.

Sunderman called this a "bearish quick move" that could be betting the stock falls before Friday. Interestingly, this week the Limited is expected to finalize a split-off of its majority-owned stake in

Abercrombie & Fitch

(ANF) - Get Report

through a Dutch auction. The deal allows Limited shareholders to exchange one of their shares for a portion of Abercrombie stock. The exchange ratio is between 0.73 and 0.86, and will be finalized after the deadline of midnight, May 13.

Merger target

Western Atlas


saw more than 5,000 contracts in its June 90 calls move on the CBOE at 3 5/8, most likely as a hedge against the falling stock amid the souring view of its merger with

Baker Hughes


. Western Atlas was at 89 3/4, down 3 1/8 today.