Net Stock Bandwagon Rolls Again

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It must be May. The Dow is up 100 and speculators are snapping up Internet companies' options like there's no tomorrow. It certainly can't be the dismal September the market has been living through.

For most of this week, call buyers have held firm, even though the plays were a little pricey. The smarter ones played spread positions -- buying one option and selling another that was less likely to be exercised -- but the buying was definitely there.

Today, powered by alliances between

Dell

(DELL) - Get Report

and

Excite

(XCIT)

and

Yahoo!

(YHOO)

and

AT&T

(T) - Get Report

, the Internet sector turned in a vintage early 1998 performance. "The alliances are part of it, but people are narrowing down their choices," one options floor trader said. "They're tired of buying

Gilette

(G) - Get Report

."

Yesterday,

Wall St. Access

trader Keith Keenan saw a surge in demand for Excite out-of-the-money October 35 calls. An hour or so into today's trading, the value of those calls had more than doubled, rising 3 3/4 ($375) to 6 1/4 ($625) as the stock ran almost 7 to 34 15/16. By just before noon, Excite shares had popped 8 3/16 to 36 9/16.

Volume on the October 30 and 35 calls broke through the 1,000-contract barrier and traffic in the October 40 was approaching the four-digit level as well. "Yesterday we saw the October 30 and 35s. Today, people are buying the 40 calls and selling covered calls," Keenan said.

Down on the trading floor of the

American Stock Exchange

, where

Letco

specialist Mike Riley trades both Yahoo! and

Infoseek

(SEEK)

, trading was hot and heavy. Despite the rising premiums, "there was no selling of anything," Riley said. "We're seeing very speculative buying of both puts and calls from both retail and institutional customers."

Yahoo! options volume was brisk as its shares rose 9 13/16 to 112 3/4 this morning. Its October 110 calls posted volume of 1,600 contracts and rose 5 3/8 ($537.50) to 11 3/8 ($1,137.50), making the play an expensive one. As call prices rise, even at these levels, investors may become more likely to buy the common stock and sell the calls against that position to take in some additional capital.

The market's volatility has made selling a risky proposition, however, because options that seem unlikely to land in the money are pushed there by dramatic moves.

That stodgy old retail sector was seeing a different set of fortunes today, at least in one of its big players.

Dayton Hudson

(DH)

, down 1 7/16 to 38 3/8 today, was on the receiving end of some options blues as well.

Traders sent volume on its October 40 puts over 2,000 this morning as the price of the contract rose 1 3/8 ($137.50) to 3 1/8 ($312.50) in early action. Some of that trading also was trickling into the November 35 puts, which traded 266 contracts by noon.

The department store sector is experiencing a bad month, although Dayton-Hudson's poor fortunes may be buffered somewhat by its key driver, discounter

Target

.