Options Market Sees Earnings Plays in Earnest

AOL trades are focusing on Tuesday's numbers.
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The options market sounded off on earnings today with several big-name company reports in the offing.

This week, all of Wall Street has its ears tuned to

America Online

(AOL)

, the Internet bellwether set to release earnings after the Tuesday's close.

"I think those numbers are going to support -- or not -- the whole Internet sector," said David Schultz, of

Summit Capital Holdings

. His fund was buying May 675 puts on the

Standard & Poor's 100

index "just for a short trade, today and tomorrow morning." Those puts were up 1/8 ($12.50) to 10 1/8 ($1,012.50) on volume of 836 contracts, compared with open interest of 3,355 by midsession.

"If AOL bags its earnings, it could really hurt the sector. We could get a sell on the whole market, that's not out of the ordinary," Schultz said, and he would recommend just "waiting" for the news. "Sometimes it's good just to hold on to your money."

Meanwhile, options investors holding May 22 1/2 calls in

Service Corp.

(SRV) - Get Report

, the Houston, Texas, funeral-home and cemetery operator, apparently decided to exit at a bid of 1/4 ($25) per contract. Volume was 510 contracts. The stock is trading around 19 3/4, with earnings due out, so that essentially amounts to a bet the stock won't ever hit 22 1/2 by expiration date.

Earlier this year, Service Corp. released news of lower-than-expected fourth-quarter earnings and difficulty in coping with a competitive industry environment.

A big trade in semiconductor concern

VLSI

(VLSI)

amounted to a strangle trade, a combination involving a put and call at different strikes with the same expiration date. A total of 6,000 June 17 1/2 puts traded at 5/8 ($62.50) per contract, and roughly the same in June 20 calls down 3/16 ($18.75) to 13 1/6. "The stock has been in play," said one floor broker.

"Some people still carry that opinion and are moving on it." Meanwhile, VLSI stock dipped down 1/8 to 19 1/8.

Options traders who had been playing

Fore Systems

(FORE)

rumors for the past two months were finally rewarded today when

General Electric

of the U.K. today announced an acquisition of the company for $35 a share. The offer values Fore at $4.5 billion and represents a 43% premium to Fore's closing share price Friday.