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Options Activity High on the Net as Expiration Looms

Options volume was heavy in such tech favs as Cisco and Compaq; Yahoo is quiet ahead of earnings.
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Perhaps it's an homage to hoops legend

Michael Jordan

that on the day he retires (again), option players are seeing nothing but Net.

With both





(INTC) - Get Intel Corporation Report

reporting earnings tonight, the usual gang of tech stocks was swinging the heavy options volume this afternoon. Adding to the trading volume was the first expiration of 1999, which will arrive this Friday.

Indeed, option strategists were having difficulty calculating whether big numbers in the January strike prices of stocks like


(CSCO) - Get Cisco Systems Inc. Report




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were new investors trying to squeeze a profit with three days left before expiration or longer-term investors closing out their positions before the deadline.

For example, four strikes in Compaq's in-the-money January calls -- the 37 1/2s, 40s, 42 1/2s and the 45s -- were hopping as investors traded a combined 12,000 contracts in these strikes. With the prices of the strikes falling, it may have been that investors were closing out the in-the-money calls and taking what profit they could. Compaq was down 1 9/16 to 46 13/16 this afternoon.

Other investors looked like they were playing some straddles to eke out some profit before the end of the week. Two big straddles were seen in Cisco's January calls and puts. The larger straddle saw 2,092 contracts of in-the-money January 100 calls trade along with 2,265 contracts in the January 100 puts. Both plays came against massive open interest. Cisco was down 4 3/16 to 100 1/16 this afternoon.

"We're seeing a lot of activity because of expiration," says Scott Fullman, chief options strategist for

Swiss American Securities

. "This could be one of the busiest expirations we've seen in a long time."

Interestingly, options volume in tonight's big earnings reports -- Intel and Yahoo! -- was vastly different.

Intel was smoking, with its January puts and calls between the 130 and 145 strike prices trading more than 20,000 contracts combined. Intel was trading down 3 5/16 to 136 7/16 this afternoon.

Yahoo!, on the other hand, was relatively quiet in options even as its stock swung wildly, from as high as 443 to as low as 370 as investors tried to guess the earnings outcome. Much like its Internet brethren, Yahoo! was down 20 5/16 early this afternoon, trading at 394 3/16.

"The stock has run up so much that investors can't afford the premium anymore," says Joe Sunderman, options strategist for

Schaeffer's Investment Research

. The nearest out-of-the-money calls, the February 400s, were trading for between 66 and 69, or $6,600 and $6,900 per contract.

Mike Riley, of


, the specialist for Yahoo! options at the

American Stock Exchange

, says he is seeing primarily buying, although the emphasis has switched from call-buying yesterday to put-buying today. The January 320 puts, for instance, traded 706 contracts against open interest of just 661.

"About 95 out of every 100 trades are to buy," Riley explains. "The sellers can't play." Investors wishing to either sell calls or puts have to put up margin as a guarantee on their trade, but as the stock has climbed, so have the margin requirements. The one-sided buy demands are driving up prices in both calls and puts, he adds.

Riley says he is expecting a big swing in Yahoo! tomorrow, potentially as much as 200 points, in the wake of the earnings release. He points out today's swing was 70 points as of midday, and yesterday's was 120 points. "The options prices are reflecting this volatility," he notes.

The market-makers obviously agree. Implied volatility, the expected trading range of the underlying stock, for Yahoo! was 125% for the February 400 puts and 135% for the February 400 calls, indicating market-makers were requiring a great deal of protection to play in these options.

Data Broadcasting


continues to see call action as it readies the spinoff of the financial news site

, its joint venture with


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, in an IPO this week. Data saw 1,919 contracts and 3,021 contracts trade in its February 35 and 40 calls, respectively. The trades came against much less open interest. Prices were climbing, reaching 13 5/8 for the 35s and 11 1/4 for the 40s, indicating investors may be expecting this stock to run after the spinoff. Data's stock was lately trading at 38 5/8, up 1/4.

American Bankers Insurance


(ABI), which broke off its deal to be acquired by


(CD) - Get Chindata Group Holdings Limited Report

last year, is rumored to be getting a look from former suitor

American International Group

(AIG) - Get American International Group Inc. Report

(AIG), according to Paul Foster, options strategist at

1010 Wall


The $2 billion market cap ABI saw its January and February 50 calls trade 1,060 and 1,396 contracts, respectively. The February contracts were trading at 2, or $200 per contract, and went out against open interest of only 298 contracts. The April 40 puts were also active, trading 2,800 contracts. Foster suggests investors were buying up the near-month calls and selling the puts in expectation of a deal for ABI after Friday's expiration.