OEX Calls Building as Traders Seek Safe Year-End Positions

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Where to hide when the end of a volatile year is approaching? Options traders seem to have decided to seek shelter in the

Standard & Poor's 100

(OEX) contracts.

Today's midday volume is showing a decidedly strong move toward the OEX contract -- recently split by the

Chicago Board Options Exchange

to juice up volume and liquidity -- but at levels that suggest a healthy amount of year-end indecision.

"There's very little speculation. It's a defensive time," said Kyle Rosen, the options strategist at hedge fund

Strome & Susskind

. "People don't want to take the risk at the end of the year but they want some exposure in case the market rallies."

December rally traditions notwithstanding, the OEX call plays today, dominating an otherwise lackluster session, are not too hot, not too cold, but just about right for the first week of December.

At midday, with the OEX down 1.09 to 476.05, the December 465 and 470 calls have been popular with volume of 2,384 and 2,206, respectively. The busiest OEX call has been the December 480, which traded more than 3,054 contracts this morning. The December 495 call also is popping up on traders' radar. OEX puts, meanwhile, haven't done much of anything, as at-the-money volume is roughly half of what's being seen in the similarly placed OEX calls.

Rosen sees the safe haven of the OEX and OEX component stocks such as


(IBM) - Get Report

coupled with today's tech stock downturn as a natural draw for traders to the OEX. "They're trying to hide in the OEX; they're running to


," he said.

In the tech sector,


(INTC) - Get Report

puts traded heavily as the stock fell 3 1/16 to 78 1/2 this morning. More than 3,000 of the December 75 and 80 put contracts changed hands by 11:30 a.m. EST. As a result, the

Nasdaq 100

index put options (NDX) at the 990 level were more active than usual. The 990 puts cracked the 1,400 volume level on open interest of 1,684.



puts were also active, with the company's December 65 and January 60 contracts trading at the 3,000-contract volume level. Motorola fell 3 1/16 as well, to 63 5 1/6.

More interesting than the volume numbers, however, was low levels of implied volatility -- a key element of options pricing -- on NDX options, according to Rosen. Those IV levels, he said, were unusually low and even lower than some of the OEX series built to be substantially less volatile. "Given the news in the tech sector today, I would expect NDX vols to be 40; instead they are in the low- to mid-30s," Rosen said, pointing to the December 990 series. "On a relative basis, the NDX is cheaper than the OEX." One explanation for the low implied volatility is that the investing community isn't in a "speculative mood," Rosen said, and hasn't been playing through the NDX.

In other options activity:

Marine services firm


(TDW) - Get Report

was up 2 1/8 to 55 7/8, and its out-of-the-money December 60 calls followed. More than 1,000 of the contracts traded in early action today on open interest of just over 840.