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Earnings Week Brings Options Speculators Back

With waves of earnings reports and expiration Friday both bearing down, options players were able to add a little bit of speculative spice to their trading, breaking with the hedging strategies that have dominated the past month.

The earnings players, who buy options positions the day before or day of earnings announcements to take advantage of a related move in the stock, were looking today at


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(AAPL) - Get Apple Inc. Report

, and

Sun Microsystems

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, whose earning are all due out this week. Merck's results are expected Friday, Sun Micro's are due out tomorrow and Apple's, of course, will be presented at a Steve Jobs love-in this afternoon.

Still, yesterday's disastrous earnings announcements from


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, the trading hasn't been "too aggressive," according to one options-firm pro. The trading in Apple showed traders piling into the October 40 calls, sending volume to 1,800 contracts by midday. The price of the contract wasn't too volatile, however, rising just 1/16 ($6.25) to 1 13/16 ($181.25).

"We haven't seen a lot of speculation, because speculation is what hurt this market," said

Swiss American Securities

options strategist Scott Fullman. "But if those October 40 Apple calls aren't speculation, I don't know what is." Fullman said the absence of similar activity in the November 40 calls showed traders are playing primarily for this afternoon's earnings announcement.

"There's some bias in Apple today," said one options pro. "Some shorts are buying it to cover because it's surprised the past two quarters and nobody knows what to expect."

Meantime, Merck saw much of the same kind of trading in its October 130 calls as the flagship drug stock traded up 7/16 to 131 3/16 this morning. Those October 130 calls traded more than 1,000 contracts, while the November 130s had yet to trade 100 contracts.

Meantime, the expiration-related rolling continued as traders sought to maintain their protective positions for another month, even though put prices remained high, traders said. "There's some heavy put-rolling today, and people are willing to pay more for the rolls to stay covered," said one options firm trader. "They're being fairly aggressive, even though vols are high."

Fullman said the market's fairly even performance during the past three sessions has expedited the rolling process into November options. "The vols are coming in a little, and it just doesn't pay to keep on your October positions. Traders are worried about being squeezed from either side. You make your move because you just don't know what's going to happen."


Chicago Board Options Exchange

volatility index was down 1.49 to 41.62 today.