Divergence Showing Up in Options as Put Buyers Disappear

And big action shows up in Oracle and Com21.
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With the conflicting movement of the

Dow

and the

Nasdaq

giving mixed signals, options traders were waiting Monday for a sign that the selling was over and the bear was staying in the woods a little longer.

Euphoria over the Dow's 100-point midday gain was muted by the Nasdaq's 100-point plunge as divergence became the key word of the morning. That, and a stubborn

volatility index

(VIX) that refused to give a green light to buyers, left options traders wondering which way to play the morning.

"There is no 100% clear sign that the selling or the divergence is done yet," says Scott Fullman, chief options strategist at

Swiss American Securities

. Options traders usually look for the VIX to top 30 before they start to buy in earnest, but while the VIX hit 28.8 on Friday, it was flat today.

Another factor vexing the traders was the lack of any solid bearish sentiment, especially in the put/call index which still showed relatively little put activity. "After several big declines in the Dow like we've seen, you would think they would be buying puts, but they're not," says Jay Shartsis, options specialist at

R.F. Lafferty

. "There is no fear in this market, and that's a dangerous thing."

So, the low put/call ratio shows that traders aren't running for protection, but a high VIX shows traders who do want some cover are willing to pay dearly for it. Chalk up another divergence.

There was some put action on the

Nasdaq 100 tracking stock

(QQQ) - Get Report

known as the Q, which saw 15,400 of its out-of-the-money March 198 puts trade. The contracts went out at 6 1/2, or $650 per contract, making this a $6.8 million bet the tracking stock would drop more than 3% by mid-March.

The Q was down 3 3/4 to 204 3/8.

Oracle

(ORCL) - Get Report

was leading all comers with a massive trade of 40,585 contracts of its March 60 puts at 1 5/8, or $162.50, that crossed the tape around noon.

The trade comes right after Oracle announced it was partnering with

Sears

(S) - Get Report

and

Carrefour

, a major European and Latin American supermarket chain, to launch an international B2B exchange to serve the retail industry. Oracle's stock was down slightly to 70 1/8, off 1/2.

3 Com

(COMS)

saw some action in its March 80 puts and calls ahead of the company's planned spinoff of its

Palm

division, maker of the popular Palm Pilot, in an IPO later this week.

The company's stock has been on a tear since last September when it announced the spin-off, reaching a new intra-day high of 84 1/4 on Friday. Today, the stock was off a bit, down 13/16 to 79 7/8.

The March 80 calls were moving, with 10,000 contracts trading at around 11 1/2, or $1,150 each. That hefty price tag means that 3 Com would have to climb to 91 1/2, or another 11%, by the middle of next month.

Put players are also betting on a bullish 3 Com by selling 2550 contracts in the March 80 puts at around 8 1/4, or $825 per contract. By selling puts, an investor hopes either the stock will go up leaving the options to expire worthless or the stock to fall to a level at which he feels comfortable buying it.

In this case, the investor is selling his commitment to buy the stock at 80. He gets to take in $825 per contract now, and if the stock goes up, the put options will expire worthless.

Score one big win for the call buyers.

This time it was in

Com21

(CMTO)

, a high-speed Internet access equipment supplier, which was up 6 9/16 to 70 by midday.

That action allowed an investor to sell 3600 contracts of the deep-in-the-money March 30 calls for 40 1/2, or $4050 each. The price of the calls had jumped almost 26 ($2600) from when they had last traded.

Com21, which was trading at around 10 in September, has been on a white-hot tear recently, hitting a new high of 78 1/2 today, as it prepares to launch a new product that will allow users to send voice and data more quickly over cable lines.