It's deja vu all over again.
August 1998 was a rough time to be "long" the market as the
Standard & Poor's 500 Index
But at least that time it was "an equal-opportunity drubbing," said Bernie Schaeffer of
Schaeffer's Investment Research
in Cincinnati, as all major sector indices were also in the red. Though some relinquished more than others, pretty much all of them were lodged in negative territory for the eight months of last year.
Well, it's August again. This time, though, did somebody say, "Hold on tight"?
"Today, we finally saw people quaking. The Internet getting pounded is the main thing, but there are a lot of parts to this," said Kyle Rosen of
Rosen Capital Management
in Los Angeles. "We're talking now about a major bear market. But short term we see enough cash out there to see a good two-week rally. I'd be covering shorts if you haven't already and then as we approach Labor Day, outright shorting the market."
Among the most actively traded Internet options were
2000 January 140 calls, down 3 1/4 ($325) to 9 5/8 ($962.50) on volume of over 1,800 contracts, engulfing the open interest of 297. The shares were down 3 5/8 to 88 15/16.
August 110 puts, at 21 ($2,100) on Tuesday, were trading at 22 1/2 ($2,250). August 85 puts at 4 5/8 ($462.50) were up to 5 3/8 ($537.40). Amazon's stock was flat at 88.
also topped Thursday's most active list, with the stock down 8 15/16 to 78 1/2. AOL's out-of-the-money August 75 puts shot up 2 9/16 ($256.25) to 3 7/8 ($387.50) on volume of over 4,000 contracts. August 80 puts nearly doubled in price, up 3 1/2 ($350) to 6 ($600) as the bears continued their assault.
"This is an Internet debacle, not a blue-chip debacle. Professional managers buying
are encouraged by the fact that the bubble's popped. The speculators are washed out and are out of the way. Now it's safer and cleaner to buy what they have to buy," said Rosen.
Historically, August has brought rocky times. Over the past 23 years, Schaeffer pointed out, the month of August has generated positive returns on 13 occasions. The average return over this nearly quarter-century is an unimpressive 0.22%. August has shown itself to be the third-worst-performing month of the year and the second-most-volatile month.
The market fear gauge measured a minor heart attack Thursday morning, as the
Chicago Board Options Exchange Volatility Index
, or VIX, shot up more than 10% to 32.12, before settling back at 29.87.
Separately, an options investor in
apparently opened a straddle position in the September 25 puts and calls, possibly by selling the August 25 calls, according to one trader. A straddle purchase consists of buying both a put and a call with the same terms -- same underlying stock, strike price and expiration date.
A massive order of 10,000 August 25 calls traded at just after 10 a.m. EDT, compared with open interest of 16,465. Just a few minutes earlier, 10,000 contracts in both September 25 puts and calls crossed on the hour.