Skip to main content

Fed Watchers Spin the Wheel as Deal Chatter Clatters in Background

Most Fed scenarios are actually bullish, it now appears.

Options investors are masters at multitasking. Monday, they kept their eyes glued to the wires for clues about what the

Federal Reserve

will do Tuesday and their ears on deal noise swirling around options-trading floors.

In the case of the Fed, "almost every scenario is going to be a bullish one," Larry McMillan of

McMillan Analysis

wrote in his morning research note. If the Fed doesn't raise rates, that's bullish for the market; if the Fed raises rates by a quarter-point, "that too will be bullish." The only bearish scenario, at least for the options world, would be a raise of more than a quarter-point, or a raise of a quarter-point accompanied by a "bearish stance" of some sort, McMillan explained. But McMillan said the latter scenario seems unlikely because the Fed adopted a neutral stance just last month.

McMillan was recommending taking a small position ahead of the Fed by buying two September 700 call-option contracts on the

Standard & Poor's 100

, or OEX, options. The OEX was up 7.78 or 1.1%, at 704.37.


Chicago Board Options Exchange's

volatility index also pulled in its horns, with the ratio slipping to 23.20. That figure is watched as a measure of uncertainty, fear and downright heebie-jeebies, in the broader market. Why was it dropping Monday? "Partly because no one's really doing much ahead of Tuesday's rate news," said Michelle Skupp of the

Miller Tabak

options-trading desk in New York. "Activity has really dried up."

The Cut of Nautica's Jib

On the chatter front, some traders were tuned into



, a retailer that management was said to be considering taking private through a leveraged buyout. Within the last month, the Chicago market maker in the options said, talk surrounding Nautica has resurfaced.

"About three or four weeks ago there was talk there would be an LBO by management, but it was just rumors we'd heard around the floor," said Ron Bruder, the head of

RMB & Associates

, the designated primary market maker in the options. "Nobody has been actively trading it other than a few firms primarily buying in-the-money and at-the-money calls" around the 17 1/2 and 20 strike prices.

If the options activity indicates anything, he added, "it's that whatever deal happens would happen below 20."

Nautica's most active options were the October 15 calls, down 2 ($200) to 1 ($100) in thin volume. September 15 calls were down 5/16 ($31.25) to 5/8 ($62.50), while the stock was up 5/16 to 14 15/16. A call to Nautica's chief financial officer, W. Donald Pennington, at New York headquarters wasn't immediately returned.

Other Active Issues

Children's Place


, a specialty retailer of apparel and accessories for children, saw notable price swings in its options, while its stock price rocketed up 4 3/16, or 12%, to 38 1/4. September 40 puts fells 2 1/4 ($225) to 3 3/4 ($375) and the September 35 calls doubled in price, up 1 1/2 ($150) to 3 ($300), on volume of 25 contracts, more than half its open interest of 40.

Among other options topping the most-active list were

Wellpoint Health Net


, which provides health care insurance, workers' compensation and other managed-care products. A large trade in the October 75 calls, a 5,000-contract slug, crossed at 6 ($600), down 7 3/4 ($775).

Open interest totaled just 17 contracts. The stock, meanwhile, was down 1 1/16 to 76 7/8.