On the way up, Internet stocks turned Wall Street valuations into Bizarro-world, with no top in sight. On the way down, however, they're following all the traditional rules of gravity by selling off fast and across the board.
As a result, Internet and technology were dominating options activity. Among the busiest were
AOL's out-of-the-money June 115 puts jumped 1 1/2 ($150) to 6 3/8 ($637.50) on volume of almost 2,000 contracts. AOL was down more than 6 to 120 by midday.
The Net stocks, however, weren't alone in attracting negative attention. "There was also plenty of call-selling in financials and health care," said Leon Gross, institutional options strategist with
Salomon Smith Barney
. "This is a way of selling premium, particularly if they still own the stock."
That premium, investors hope, serves as a buffer by offsetting the loss in the underlying stock position. It works only in situations in which the moves are limited.
But the story of the day was the selloff in the tech sector, as Internet options moved crazily along with stocks. Options on
TheStreet.Com Internet Sector
index were Exhibit A: As the index slid 32 points to 591 halfway through the session, premium on the June 600 put contract jumped 12 3/4 ($1,225) to 45 3/8 ($4,537.50), suggesting that ample volatility levels were well-deserved.
The damage even extended to Net plays that are yet to be listed.
Barnes & Noble's
much-anticipated Internet spinoff,
, had its IPO price range raised to $16-$18 from $11-$13, but its parent's stock was under pressure.
The bookseller's stock dropped 2 5/16 to 32 9/16, and its June 35 calls slipped 1 5/8 ($162.50) to 2 ($200) on volume of 1,184 contracts.
"Was it that Wall Street didn't like something with barnesandnoble.com's prospectus?" asked Paul Foster of
in Chicago. "Did money managers come back from the morning meeting and decide to sell after last week's bad earnings? That's certainly what this looks like."
Barnes & Noble options players also "probably realize that they need the capital badly, they don't need to have it sit in a Barnes & Noble position," he added. "They can use it better elsewhere."
One Philadelphia options trader echoed the sentiment. "The market just doesn't know if barnesandnoble.com is another
," the trader said. "Plus, retail investors control trading in these Internet issues much more than any other sector, at least on the buy side. When they start going down, mom and pop just sell them. They don't wait."
Among the non-Net names,
Delta & Pine
options continued to actively change hands after the companies last week extended their merger deadline to December from June.
Delta's June 30 puts traded more than 1,800 contracts and Monsanto's June 45 calls slid 15/16 ($93.75) to 1 1/16 ($106.25) on volume of 9,332 contracts. Monsanto shares lost 2 7/16 to 41 15/16 and Delta dropped 3 1/16 to 29 5/8.