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If the market were a TV show, the announcement signaling a commercial break would sound something like this: "Today's

Nasdaq 100

selloff is being sponsored in part by



, America's former favorite tech stock."

Cisco's disappointing earnings

report was helping clip the Nasdaq in particular, sending the NDX down 3.2%. Shares of Cisco were off $4.63, or 12.9%, to $31.13.

Cisco options reflected investors' disappointment with its quarterly numbers and growth projections. February 35 and 40

calls -- contracts that buyers couldn't get enough of in the days leading up to Cisco's earnings announcement -- lost most of their value as the stock fell.

Fleeing traders sent the price of the February 35 calls down 2 1/4 ($225) to 5/16 ($31.25) on volume of more than 13,800 contracts and chewed 5/8 ($62.50) from the February 40 calls, sending the price down to an almost-invisible 1/16 ($6.25) as 10,000 contracts changed hands.

Although the selloff in tech was painful, options market sentiment indicators linked to the Nasdaq 100 weren't giving off much in the way of fear signals. The

Chicago Board Options Exchange Nasdaq Market Volatility Index

, or VIXN, was only up 3.53% to 62.84. The

American Stock Exchange

volatility index based on options on the

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Nasdaq 100 unit trust


was up a modest 3.92% to 55.19.

The higher and sharper the readings in those sentiment indicators, the better the bullish case is for

contrarians. However, judging by the levels in both indicators, little in the way of fear is being registered.

Meanwhile, the equity

put/call ratio wasn't flashing bullishness to contrarians either. Contrarian theory says high

put/call ratios are bullish, while low ones are bearish. The higher the ratio, the more investors are flooding into the market to buy puts because they're afraid.

On the other hand, an extremely low put/call ratio suggests that investors are too complacent and happy with the market and are mainly buying calls. With the overall equity put/call ratio of the nation's options exchanges registering 0.63 today, that's not a screaming bullish sign.


, one of the nation's largest options trading firms, has hired investment bank

Raymond James

to help in its search for a "strategic partner," Letco's chairman confirmed.

"We're looking for a strategic partner that would provide order flow, capital and/or technology," said Letco Chairman Lee E. Tenzer. Letco is privately held. Those broad categories put brokers and competing trading firms high on the list of prospective investors.

Tenzer said the firm was looking for a partner in part because the options business is becoming more capital intensive and that its banker has held preliminary talks with several potential partners, which he declined to identify.

The options market-making business has changed dramatically over the past year and a half. With the advent of multiple listing of options beginning in 1999, competition among market makers for order flow increased sharply and cut into firms' profit margins.

Letco is a market maker and specialist on a number of high profile options such as






on four of the nation's five options exchanges.

Also weighing on profits, is the competitive need for market makers to pay brokers for their order flow. Last year, options exchanges began payment-for-order-flow programs, levying fees on market makers to fund rebate programs that attract orders to their exchanges.

Those factors have all played into a trend of consolidation in the options market-making industry, as smaller market-making firms sold out to bigger firms and industry leaders sought to get larger and larger.

A handful of options market-making firms are titans in the industry, including privately held



Goldman Sachs'


Spear Leeds & Kellogg


Knight Trading Group


and Letco, to name a few.

In 1999 Goldman bought

The Hull Group

, and last year it bought Spear Leeds. Knight has also been an aggressive acquirer in the past, and most prominently snapped up market-making firm



Bear Stearns



Helios Group

, an options trading and technology firm last year.

Letco, which has also completed several strategic deals with smaller trading firms, traded more than 40 million option contracts and more than 1 billion shares of stock in 2000.