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Net Options Get Approachable

As implied volatilities slip, Internet plays get cheaper.

It may now be slightly safer -- or at least less expensive -- to swim in the shark-invested waters of Internet options.

Hank Nothnagel,

Everen Securities'

options strategist in Chicago, gamely points out that implied volatilities in many of the Internet sector's bellwether issues --

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America Online


-- have dipped near or below 100 for the first time "in a very long while."

"While they're still high in absolute terms compared to where they were two to three months ago, they're reasonably healthy and easier for clients to trade," he says.

Implied volatility represents the percentage amount by which the market expects the underlying stock price to fluctuate on an annualized basis.

Volatility is a key part of how an option is priced, as it represents a sort of risk measure for an investors in the option. By extension, higher risk will cost more, and lower risk will cost less. So lower volatility can often mean the cost of an option drops.

AOL's volatility currently stops out at around 118,


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equals 104,

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is at 91, Yahoo! is at 93 and is at 96.

Typically those companies were trading at volatilities of 150 or higher earlier this year, Nothnagel says.

Does that mean there will be less blood in the water?

Not necessarily. "Before, when the stocks got knocked down, we were seeing a rush of buyers in the calls. Now people are a bit more analytical. They're taking a wait-and-see attitude," Nothnagel says.

Among individual options,



puts grew slightly richer in price as rumors circulated that the company may disappoint with its second-quarter earnings, usually the slowest of the year, due out in several weeks.

The marketplace was reportedly disappointed with the company's second-quarter numbers last year. Also, Gateway's chief financial officer was slated to speak at a New York conference Thursday afternoon.

On Wednesday, average volume in Gateway options spiked over 16,000 contracts, compared with average daily volume of 4,750. Among Thursday's most-actively traded Gateway options, June 60 puts gained 7/16 ($43.75) to 2 1/4 ($225) on the

Chicago Board Options Exchange



Coach USA

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options rolled further into the money on confirmation that it is in talks to be acquired.

The motor coach company said late Wednesday it is talking with another party about a possible business combination worth $42 a share of Coach common stock.

The June 35 calls that Wednesday cost 1/2 ($50) were trading Thursday at 2 7/8 ($287.50), a spike that surely warmed the hearts of speculators.