Net-Stock Puts Hold Little Sway

Protection is passe in the world of Internet speculation, even on a down day.
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Take 15 points from the hide of most any stock and typically, there's a run for cover to the options market.

Take 15 points out of

(AMZN) - Get Report




, however, and still there's no rush to buy puts, sell calls or do anything else remotely resembling a hedge. It's action, or lack thereof, that's anything but typical because the volatility of the sector's biggest players has driven up options prices considerably and, in a sense, squashed the benefit of playing.

On a day when the New York City subways were a little light, the World Trade Center farmer's market took the day off and the impending New Year was more prominent than anything else, the Internet sector saw a little bit of a selloff but not enough to bring out the hand-wringers.

CIBC Oppenheimer

senior options strategist Michael Schwartz checked out Amazon's January 330 puts and saw them trading right at their theoretical value. On a day when everyone's favorite online bookstore was down 15 to 336, the premium picture could have been vastly different. "I would expect them to be trading for more than their theoretical value, but the volume isn't that impressive and the open interest isn't that impressive," Schwartz says.

Those January 330 puts were trading at 26, up 3 near midday, but fewer than 100 contracts had traded and open interest was less than 1,000 contracts. With the kind of pie-in-the-sky prices investors have been willing to pay to get long Net stocks, the same gusto could be expected on the short side, especially in the wake of their most recent runup.

"The volatility gets to a point that it makes the premium too high for the options to be attractive," Schwartz observes. "When the big premiums are involved, there's more money to be made trading the stock than in the options." Schwartz says a more prudent hedge may be to just sell off some portion of the stock to take some profits, as opposed to paying up for a put position. "I've never seen a group as volatile."

Call prices weren't giving up much either. Yahoo's January 270 calls, barely out of the money with the stock down 6 to 268, had lost 4 3/8 ($437.50) of their value but the contract still cost 20 1/4 ($2,025). And the thing had traded more than 500 contracts halfway through the day.

One Internet-related firm,



, was up today. The online brokerage picked up 5 to hit 61 11/16 by midday and call buyers weren't about to give up on the rally yet.

The January 60 calls traded more than 500 contracts and the freshly minted January 65 calls were up 1 1/2 ($150) to 5 ($500) on volume of 340 on their first day of trading.