Options Prices Rising, but with Little Conviction

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Panic? Not this market. Well, at least not today.

Intel

(INTC) - Get Report

had preannounced disappointing earnings.

Compaq

(CPQ)

,

Microsoft

(MSFT) - Get Report

and

Dell

(DELL) - Get Report

had a few bad days. Strangely enough, options traders, among the most short-term of market beasts, weren't talking about protection, buying puts or panic. The words were soothing: "Sit out the open," or "Let the dust settle." By midday, the chatter was of early bottom fishing. Boy, that only took a couple of hours.

"So far, today was not really as damaging as most people expected," said

Smith Barney Salomon

options strategist Kevin Murphy, who said the firm had advised clients to stay away from the opening. "People weren't rushing in to buy puts, and maybe it was largely because of what happened in October. They are trained not to panic." During late October's turmoil -- highlighted by the 550-point drop on the 27th -- the market rebounded swiftly.

Today, in the face of a similar disaster, the price of protection went up while the overall market slid only about 60 points off the DJIA. Intel's March 75 puts had jumped a whopping 1 1/2 ($150) to 1 11/16 ($168.75) by 11:30 a.m. EST, with the shares trading at just over 76. That contract traded more than 6,200 this morning, and the March 70 puts posted volume of 5,200 compared to open interest of just 2,000 contracts. One trader predicted that options prices, abnormally low for the past six weeks, would pick up again as a new dose of uncertainty was injected into the market. The emerging preannouncement season would be among the key contributors to rising premiums.

In addition, despite the sigh of relief, the late-morning market action prompted some traders' frustration with the inability of the options activity to send a signal about the market's short-term expectations. "There's no real directional options playing," said one major firm trader. "We're seeing prices in out-of-the-money stuff go up -- puts and calls -- but not much else." Murphy said he saw price levels rising a little, but that the implied volatilities of LEAPs (long-term options) were basically unchanged.

Intel had taken most of the tech sector down with it this morning -- the chip giant accounted for 21 of the 37 points the

Nasdaq 100

index had lost at midday -- but the upward movement of retailers wasn't showing up optimistically in the options market, traders said.

Smith Barney's Murphy said, however, that the bottom fishers buying in- and at-the-money calls are likely to come in waves during the next few days. "You always look for opportunities to buy quality stocks. Call buyers are getting long on today's weakness," he said.