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Optimistic Options Pattern for Starwood; Cisco Plays Mixed

Wall Street looks ready to knock off another Washington-induced slump, this time taking aim at a possible upswing in

Starwood Hotels & Resorts Trust


via some aggressive out-of-the-money options trading this morning.

Beginning last week Starwood shares tumbled and options players scrambled to establish new, mostly pessimistic positions as the new Clinton budget proposals threatened the lucrative "paired-share" real estate investment trust (REIT) tax loophole. Yesterday that negative sentiment apparently peaked, slicing 2 1/4 points off Starwood. Conventional wisdom now seems to have turned to Starwood's favor, as Street pros have decided that the new proposed legislation won't interfere with the trust's acquisition of


(ITT) - Get ITT, Inc. Report


As a result, Starwood's shares won a reprieve from the slugging of last week and was trading at 52 1/2, up 1/2 so far in this session. And at least one buyer was lining up to establish a call position that was about $3 out-of-the-money today. Starwood's February 55 calls recorded volume of more than 1,646 contracts today, most of them selling this morning for prices between 7/16 ($43.75) and 11/16 ($68.75). At midday that buying extended into the March 55 call series, as volume rose quickly to 1,055, compared with open interest just above 4,000. The February 55 has open interest of 21,000 contracts.

"Those calls look pretty inexpensive," said Kyle Rosen, head options trader at hedge fund

Strome & Susskind

. "People were selling it off on the loophole thing. It looks like people are realizing that the weakness was a result of a misunderstood situation." Rosen said that with 2 1/2 weeks remaining until the February expiration and the stock apparently steadying just a few points away from that 55 strike, the speculation is a "reasonable purchase."

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The share prices were up at


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Patriot American Hospitality

(PAH) - Get Element Solutions, Inc. Report

, two of the other paired-share REITs that have options. Despite the upswing there, options activity on the pair was light or nonexistent.

* * * * *

Traders seem split on


(CSCO) - Get Cisco Systems, Inc. Report

, with the network company's earnings expected out after the close today. The firm's shares were trading down 1 3/8 today, taking the stock price to 62 5/8. Yesterday, action was decidedly positive with investors piling into the February 65 calls. Today those February 65 calls were again popular, with volume of 2,415 at midday, and other upside speculation was bubbling at the 70 strike, where the calls traded 750 contracts.

But today's slip has brought out put players, who were betting on continued weakness by sending volume on the February 60 puts to more than 1,000 so far.