Nasty news on the earnings and economic front were burying stocks across the board and sending the

options market's fear gauges higher on this

expiration Friday.

The

Chicago Board Options Exchange Volatility Index

, or VIX, jumped 5.5%, while the

CBOE Nasdaq Market Volatility Index

, or VXN, hopped 5.7%. The

American Stock Exchange's

volatility index on the

Nasdaq 100 unit trust

(QQQ) - Get Report

, the QQV, rose 4.3%.

Those gauges of anxiety in the market generally rise when the stock market falls and generally have inverse relationships to price action in stocks. For example, overall, the VIX increases when

put-buying on options on the

S&P 100

, or OEX, increases.

Those market volatility indicators, however, are off their highs of the session. The VIX was as high as 25.64; the VXN had been as high as 67.51; while the QQV rose as high as 62.19.

The lousy news for the market began after the close Thursday, when

Nortel

(NT)

warned of an earnings and revenue shortfall. Also after the close,

Dell

(DELL) - Get Report

posted earnings that missed Wall Street estimates and

Hewlett-Packard

(HWP)

fell shy of analysts revenue forecasts.

And the news didn't get much better this morning due to a higher-than-expected

reading on the

Producer Price Index, which ignited inflation worries.

Other sentiment gauges in the options market jumped, including the CBOE equity put/

call ratio, which rose to 0.68. That means for every 100 calls that traded, 68 puts traded. For contrarian traders, the higher the

equity put/call ratio the better, because it shows that people are less confident about the market and are buying put options to reflect that sentiment. Investors buy put options to either speculate on further downside in a stock or index, or to protect long positions.

The overall options market equity put/call ratio was 0.74.

Meanwhile, action in Nortel put options spiked late yesterday afternoon ahead of the company's profit warning,

The New York Times

reported.

The newspaper noted there was heavy volume in the February 30 puts and the March 30 puts late yesterday afternoon. Volume in the February 30 puts was nearly 9,600 contracts, while for the March 30 puts it was almost 12,800 contracts. The last trade on those puts yesterday was at 1.15 ($115) and 2.70 ($270) respectively.

Nortel yesterday rose 20 cents to close at $29.75, after trading as high as $31.85 intraday. On Friday, shares of Nortel plummeted $9.63, or 32.4%, to $20.12.

Today, the February 30 puts were trading up 9.15 ($915) to 10.30 ($1,030) on the CBOE, while the March 30 puts were up 7.50 ($750) to 10 ($1,000) on the Amex, a hefty profit for those long those puts.

Nortel options trade on four of the five U.S. options exchanges. The CBOE said "as is usual in a situation regarding news of this nature, we are conducting a routine review of option activity preceding the news announcement." The Amex does not comment on market regulatory matters.

Amid the steep downdraft in Nortel, not surprisingly, the prices for the options were higher. For at-the-money options, the implied volatility has risen 11 points from yesterday to today, said Paul Foster of

1010WallStreet.com

in Chicago. He said it looked like people were starting to get out of the March 30 puts.

So how did the traders who bought

Navistar International

(NAV) - Get Report

call options earlier this month, particularly the February 30 calls, fare, now that those options are to expire today?

Poorly, to say the least.

You'll remember there was some feverish call-buying in Navistar a couple weeks ago, in part because of speculation that the truck maker and diesel engine manufacturer would get taken over. However, the only deal that Navistar has announced was a joint venture with

Ford

(F) - Get Report

to build commercial trucks. And that announcement didn't do a thing for the stock. And judging from the action today, those February 30 calls will expire worthless. Navistar was up 54 cents to $26.13.

This morning, Navistar posted a narrower-than-expected loss for its fiscal first quarter. Navistar posted a first-quarter loss of 58 cents a share, narrower than the

First Call/Thomson Financial

consensus estimate of a loss of 61 cents a share, and down dramatically from the year-ago profit of $1.10 a share. The company blamed weak pricing in new and used trucks and lower shipments of trucks for the loss. Navistar also trimmed its forecast for total truck industry volume in fiscal 2001 in the U.S. and Canada to 280,000 units, down from the 321,600 units it forecast in December.

At one time, open interest (the total number of options contracts that have not been exercised or allowed to expire) in the February 30 calls numbered in the neighborhood of 11,000 contracts. As of Thursday's close, that number had fallen to 7,436 contracts.

The February 30 calls were barely trading today, with volume of only 20 contracts. The contracts were unchanged at 0.05 ($5).