Intel Options Become Province of Put Buyers

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The bottom seems to be holding on

Intel

(INTC) - Get Report

shares and options players seem reluctant to challenge it this morning.

They are not, however, showing any positive feelings toward the company, which is going to be late delivering its next-generation

Merced

chip to market and as a result is down 2 5/8 to 68 13/16. Bearish moves such as put buying and call selling, sources said, were coming from mom and pop as well as

Goldman Sachs

. "Most of the action has been in fairly low-volume trades," said one institutional trader in Chicago. "There's been mostly retail put buying."

Worries about Intel became apparent Friday afternoon. That's when implied volatility began rising on Intel options and puts began flying, according to traders. "The whole world was buying puts," cracked one Intel trader. Implied volatility on the June 70 contract is about 37 today, off modestly from a high of 40 reached Friday afternoon.

Some concern had been directed toward the possibility that the

Justice Department

could launch an investigation of the company, in a sense complementing the government's continuing battle with

Microsoft

. But the issue in the market today was the delay of the release of the Merced chip to mid-2000 from the initial plan to release the chip in late 1999.

Wall St. Access

senior trading adviser Tom Burnett said pros were watching Intel's weakness today as it approached its 52-week low of 67 3/8. "If it gets there, it could cause some technical jitters," Burnett said. Most of the jitters felt by retail investors resulted in heavy put volume today, primarily at the June 65, 70 and 75 strike prices.

Trading sources said Goldman bought more than 1,000 of the June 70 puts, helping volume hit the 4,300 mark by just after 11 a.m. EDT. The June 75 puts also traded more than 4,000 contracts this morning. More interesting was the action at the 65 strike, initially ignored by traders this morning. As the session progressed, volume on the June 65 puts rose to 1,100 from a mere 435 contracts at 10:30 a.m. EDT. The price of the puts climbed to 1 1/16 ($106.25) from 11/16 ($68.75) on the day. On Friday, June 65 puts posted final volume of 6,320. Some of that was seeping into July as volume on the July 65 puts topped 1,000. "People may not be scared enough, they may need a trading event to move them," Burnett said of the early traffic today at the 65 level. "Volume can be light (at a particular strike price) and then build like a crescendo."

Call selling, also the home of a strong retail contingent, was hitting near-the-money options between the 70 and 75 strikes. Call selling is a bearish indicator, with investors taking in premium in exchange for possibly having their options assigned and selling their shares.

Burnett said predictions on Intel's future notwithstanding, the company's stock is closely watched because of its leadership position in the market. "What happens to Intel can get magnified across the entire sector," he said.