Options Action Shows You Can't Judge a Bookseller by <I>Time's</I> Cover

The contrarian play on Jeff Bezos' Person of the Year award hasn't yet taken off.
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Picked up Time's 1999 Person of the Year issue yet? Well, one options strategist's saying you shouldn't go selling Amazon.com (AMZN) - Get Report just because Jeff Bezos graces the cover.

Wall Street lore would have you think a Main Street magazine cover makes for a rock-solid contrarian play, noted Joe Sunderman, options strategist with

Schaeffer's Investment Research

in Cincinnati. But as always, reality is far more complicated than that, and options traders weren't taking the bait Tuesday afternoon.

The January 100 calls are among the most active Amazon.com options, but Tuesday's volume was thin compared to the number of open contracts in the strike price. The January 100 calls traded roughly 1,150 contracts, compared with 10,000 in open interest. The call option was fetching 11 ($1,100), up 1/2 ($50). Meanwhile, in another sign that the theory wasn't holding, at least for now, the stock was up 1 3/16 to 98 3/16.

In explaining how the theory of such contraindicators has come to be, Sunderman explained that "magazine covers feature only those trends that have been in place for a long time and are widely known and almost universally accepted." So in most cases, the strategist continued, "those trends have peaked and are about to reverse."

Option traders use contraindicators quite a bit: In particular, they watch the "fear gauge," the

Chicago Board Options Exchange

volatility index, and put/call ratios to bet against what the herd is doing. It's what's known in options parlance as "fading" the trend.

So Sunderman went back and checked


record to compare how successful the faces were in predicting the supposed end of the trends they represented.

Using stock prices as their proxies, Sunderman found a marked degree of strength in the 12 months after the Man of the Year award-winner graced the cover. For instance,


(IBM) - Get Report



(INTC) - Get Report

went on to have excellent years for their shareholders in 1983 and 1998 after the Computer and Andy Grove appeared on


covers in 1982 and 1997, respectively.

A notable underperformer was

Turner Broadcasting

, which gave investors great returns the first three months after winning the Man of the Year, but lost all of its gains by year-end.

"From our results, I would be careful to use the recent Man of the Year award as a contrarian sell signal for Amazon.com, as history has shown some bullish implications," Sunderman said.

Sunderman, who has no position in Amazon, said he would stay long the stock over three to six months. We'll check back to see how Bezos and Amazon.com perform over the coming year.

Elsewhere in Tuesday's subdued options trading,

TSI International Software


calls were trading hot and heavy. The January 55 calls and January 60 calls traded 1,300 contracts at 11 1/2 ($1,150) and 8 1/2 ($850), up 6 1/8 ($612.50) and 6 1/16 ($606.25), respectively.

The software provider's stock was up 6 1/2 to 61 1/2 after the company set a reseller agreement with

Lawson Software