With triple-expiration looming tomorrow, options traders were continuing to pay up big-time to buy options, according to traders.
There've been plenty of reasons for options prices to remain bloated lately, considering the uncertainty surrounding the presidential election and the daily stream of earnings warnings coming from Corporate America. But even with the presidential election out of the way, traders said that options prices remained markedly inflated, in large part because of the fear of earnings preannouncements.
Alan Goldstein of
Five Dollar Trading
in Chicago said the spate of earnings preannouncements has made traders "nervous." When there are earnings warnings, there's demand for options from bears and bulls, and that helps pump up the prices for options. Goldstein is expecting prices to remain high for the next couple of weeks even though this time of year typically isn't active, he said. He said it's been a busy December, which has kept premiums high.
As for index options, usually busy the day before expiration, some market players weren't seeing a lot of action today. "It's dead," said Rob Sorrentino of
Sorrentino Asset Management
, who trades only index options. "I'm not doing anything. I'm sitting on my hands."
As for tomorrow's triple-witching, some market players don't see a rally brewing, judging by some recent action in the market.
Dave Schultz of
Summit Capital Holdings
said that based on trading late yesterday, triple-witching will be negative to flat. He said that if the
, or OEX, gets above 730, it might give the market "a little juice." If it reached and crossed that level, automated buy programs would kick in. The OEX Thursday was off 0.4% to 717.43.
As for stock picks, Schultz said he's a fan of the oil-service sector and has put some money to work in
. He's long the January 65 calls, which were down 4 5/8 ($462.50) to 4 3/8 ($437.50) on the all-electronic
International Securities Exchange
Another stock he likes is
. He is long shares of AOL. Speaking before news that the
Federal Trade Commission
had approved AOL's takeover of
, Schultz noted that AOL has not "been able to beat the drum and say how good they're going to be" with Time Warner because of the FTC ruling hanging over its head.
He said of the AOL January 50 calls, which before the news were trading at about $3.70 ($370), "that's not too bad" a price to pay for those options. However, the prices of those options have jumped in the wake of the news. The January 50 calls were up 70 cents to $4.10 on the
Chicago Board Options Exchange
announced yesterday that its board unanimously approved a plan for demutualizing the exchange at a meeting last week and also adopted proposed rules for a new, fully electronic trading system for equity options and other derivatives.
The P-Coast's screen-based trading system, which is being undertaken with Australian firm
, may be launched in the first half of 2001. The plan must be reviewed and approved by the
Securities and Exchange Commission
In January, the CBOE will
offer premarket trading on the
Dow Jones Industrial Average
index options through its electronic trading system,
. Other traditional floor-based exchanges have electronic trading systems in the works.
P-Coast Chairman and CEO Philip D. DeFeo said the exchange plans to bring up the system, "support it and the trading floor fully and completely, and let market users choose which they prefer." He added in a statement that the "initial foray may not prove to be the right one, but we won't know that and we won't know what to change until we've all gained additional experience."
Meanwhile, under the demutualization proposal the exchange would convert from a membership organization to a for-profit stockholder corporation. The exchange said that's the "critical first step that will facilitate future potential strategic initiatives essential to succeed over the long term." The P-Coast would be the first U.S. securities exchange to convert to for-profit status.