Fed Prospects Aren't Luring Options Players - TheStreet

Fed Prospects Aren't Luring Options Players

The market is calm as the FOMC convenes. Also, action in Varian and Sara Lee.
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Options market players weren't exactly jumping into the market to place any big directional bets Tuesday as the two-day

Federal Open Market Committee jamboree commenced in Washington.

The

Chicago Board Options Exchange Volatility Index

, or VIX, closed a touch higher, suggesting there was little in the way of anxiety in the market regarding the FOMC get-together, which will conclude Wednesday. An announcement on the results of the meeting are expected around 2:15 p.m. EDT, on Wednesday. The VIX rises when put-buying on the

S&P 100

or OEX increases.

"Things are certainly quieting down," said Gary Semeraro, options strategist at

SG Cowen

. "No doubt about that."

Semeraro noted that overall volume in the options market was off Tuesday, and index option volume is down to very low levels. As an example of light index option volume, he cited the volume on options on the OEX. The OEX was up slightly to 790.

The heaviest volume in options on the OEX was in the July 790 puts and calls. Out longer, there was some interest in the August 790 puts and calls. For the July 790 calls, 1,618 contracts traded, while for the puts, 1,718 contracts traded. For the August 790 calls, just over 1,001 contracts traded, while 1,013 of the puts traded.

As for options on the

Nasdaq 100 unit trust

(QQQ) - Get Report

or QQQ, the heaviest volume was in the July 90 puts, where 4,407 contracts have changed hands. The July 90 puts were trading at 3 ($300), unchanged from Monday. The QQQ was off 1/16 to 93 15/16.

The strategist pointed out that the market has been range-bound for a while, and in that environment, it's increasingly difficult to make directional bets. Considering that, the "prudent strategy is selling premium," even though premiums (the amount one pays to buy or sell an option contract) have declined from earlier this year, he said.

Volatility levels overall in the market have decreased from where they were in the March-April time frame and have come in to more normal levels, Semeraro said, something that is good for option contract buyers but not so good for option contract writers. Implied volatility is the annualized measure of how much the market thinks a stock or index can potentially move and is a critical factor in an option's price.

Some investors out there are showing a lot of affection for the July 45 call options on

Varian

(VARI)

.

Varian's stock has been on a tear lately. On June 20, the stock closed at 35 7/8, and Tuesday was trading at 47 15/16, after hitting a 52-week intraday high of 50 3/8.

By midday today, 1,900 of the July 45 call have traded, compared to open interest of 203 contracts. The calls were trading up 4 ($400) to 5 3/4 ($575) on the

American Stock Exchange

. Varian makes scientific instruments and equipment and is based in Palo Alto, Calif.

A whopping 6,000 August 20 calls on

Sara Lee

(SLE)

traded on the

Pacific Exchange

Tuesday, compared to open interest of 20 contracts on Monday. The stock was up 7/8 to 19 at midday.

Sonya Morris of

Schaeffer's Investment Research

in a note Tuesday morning pointed out that

PYA/Monarch

, a unit of Sara Lee, on Monday filed to raise $160 million in an IPO and Sara Lee's shares are getting a boost from that.

The

American Stock Exchange

began trading options on two HOLDRs Tuesday,

Regional Bank Internet HOLDRs

, under the ticker symbol RKH, and

Utilities HOLDRs

, under the ticker symbol UTH. HOLDRs are baskets of 20 stocks that trade as a single security on the Amex and were created by

Merrill Lynch

. Options on some other HOLDRs recently began trading.

The Amex currently lists options on the following HOLDRs:

B2B Internet

(BHH)

,

Biotech

(BBH) - Get Report

,

Broadband

(BDH)

,

Internet

(HHH)

,

Internet Infrastructure

(IIH)

,

Internet Architecture

(IAH)

,

Pharmaceutical

(PPH) - Get Report

,

Semiconductor

(SMH) - Get Report

and

Telecom

(TTH)

.