Oil Plays Are Gushing, but Buyers Are Wary

Qwest takeover chatter keeps pushing options traffic.
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If oil prices hitting $32 a barrel this morning did anything, it pushed speculators in some of the biggest names in the oil-service sector to lock in some positions.

Call-option buyers moved aggressively in some oil-service names Thursday morning, primarily going for

Halliburton

(HAL) - Get Report

and

Schlumberger

(SLB) - Get Report

, in addition to some plays on the

Philadelphia Stock Exchange's

benchmark

oil service index

options. Oil futures rose above $32 a barrel Thursday, but traders' confidence didn't seem to be stretching too far beyond April.

While

OPEC

members haggled over production levels and speculation eased up some later in the morning, traders had snapped up Halliburton's out-of-the-money April 45 calls, sending the price up 7/16 ($43.75) to 2 13/16 ($281.25) on volume of 821 contracts. Halliburton was trading up 1 1/16 to 42 at midday.

Schlumberger surged 4 1/8 to 81 5/8 as appetite for its options picked up. The April 90 calls saw their first volume, and were showing more in the pipeline as the early spread on the contract stood at 3 and 3 1/4.

Scott Fullman, the options strategist for

Swiss American Securities

, said the April plays show confidence in the latest surge in oil prices, but warned that traders weren't going out any further with their options positions. "What they're looking and hoping for is for the longer term, but they're not doing much in May options," he said. "It's taken a long time for them to get involved, but it could finally be seeing a breakout."

Also, though, Fullman said political concerns within OPEC and around the world could trip the running oil prices up quickly. "I think traders are now looking for quick profits, because if there's some kind of resolution on oil prices, the rally could disappear."

Investors who were betting against the sector were feeling some pain in the index options today. The Philly's oil service index saw big volume in the March 100 and 110 puts, signs that traders wanted out of those positions before they got punished any further. The March 100 puts, for instance, traded 1180 contracts and plummeted 2 11/16 ($268.75) to 1 15/16 ($193.75).

Speculators took longer shots on the valuation of long-distance carrier

Qwest

(Q)

, which could be acquired by

Deutsche Telekom

(DT) - Get Report

.

Early in today's trading, Qwest's April 60, 65, and 70 calls -- the kind of options that appreciate with a stock's upswing -- occupied the top three spots of the

American Stock Exchange's

most-active list as the stock rose 1 1/2 to 59 1/2 by midday.

Qwest's three busy options contracts accounted for volume of almost 15,000 contracts. Wednesday's

buyers of the March 55 and April 50 calls were basking in the glow of some serious money this morning.

The April 50 calls, for instance, were trading at 4 1/2 ($450) 24 hours ago and were bouncing around 13 ($1,300) at midday today.

Prudent profit-taking seemed to be the order of the day in

3Com

(COMS)

options as the much-anticipated

Palm

(PALM)

spinoff came to market.

With calls that were about 30 points in the money trading for about 54 ($5,400) this morning, it was a good time to sell the fact of the Palm IPO after buying the rumor heartily.