Options Traders Comfortable in Wake of Greenspan Testimony

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Despite a sizable pullback in the

Nasdaq Composite Index

earlier this week and the potential of worrisome

Humphrey-Hawkins

testimony by Alan Greenspan Thursday, sentiment indicators used by options market pros were still suggesting a pretty large degree of complacency.

Now with the market rallying after Greenspan's remarks, they seemed to be right. That won't, however, stop traders from worrying that others aren't worrying enough.

The

Chicago Board Options Exchange Volatility Index

, or VIX, which traders use to gauge anxiety, the CBOE equity put/call ratio, and implied volatility on the

Nasdaq 100 unit trust

(QQQ) - Get Report

continue to indicate investors may be too content with the current market.

Jordan Kahn of

Kahn Asset Management

noted that the implied volatility of QQQ -- the trading symbol of the Nasdaq 100 unit trust -- has continued to trend lower, now in the high 30s, compared to where it was in May. "I still don't think there's much pessimism out there," he said.

The VIX continues to hover in the low 20s, and has for a while, showing that investors aren't particularly worried about the market, a classic warning sign to contrarian traders.

A technical problem at the

Chicago Board Options Exchange

Wednesday was still causing some headaches Thursday as some firms worked to clear up problems.

A CBOE spokeswoman said the systems problem began at 9:30 a.m. EDT, affecting 260 of the 80,000 series that trade on the exchange. The problem was resolved early Wednesday afternoon, she said, but there was a notice of a floorwide fast market all day, indicating that posted quotes may not have been current.

A series refers to an option contract on the same underlying stock having the same strike price and expiration month. Several series in

Microsoft

(MSFT) - Get Report

were affected, the spokeswoman said. That notice is used to alert market participants.

Rod Jamieson, vice president of options at

First Union Securities

, said because of problems with orders from Wednesday, his office was still trying to straighten out problems on Thursday. He said orders that came into his system Wednesday were routed away from the CBOE because of the problems.

These technical problems have become a competitive issue because the exchanges are battling each other so fiercely for order flow.

A CBOE spokeswoman said all systems were running normally Thursday.

The

Pacific Exchange

announced today it will be launching a payment-for-order-flow program and unveiled what it calls a "quality-of-execution report."

Several

other

options exchanges previously announced they would start payment-for-order-flow programs. The Pacific becomes the fourth of the five U.S. options exchanges to offer such programs, under which rebates are paid to brokerages that trade on the exchange.

The

Securities and Exchange Commission

said

Wednesday it will conduct a study on the development of payment-for-order-flow and internalization in the options market and any changes in market quality since the multiple listing of options.

Options market making titan

Letco

announced an affiliation Thursday with

O'Connell & Piper Associates

, a firm that advises professional investors and traders in options and futures.

O'Connell & Piper, founded in 1979, is run by Martin P. O'Connell, president, who was an independent CBOE market maker and has been a member of the exchange for 23 years.

This is the second strategic partnership Letco has done with another options firm. Last month, it said it would team up with Stafford Trading to offer technology, marketing and options specialist services to smaller independent trading firms.