Options Volatility Squirms Higher

Traders exhibit apprehensiveness over the FOMC meeting and a stock selloff.
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Options investors focused on the financials Monday ahead of a key

Federal Open Market Committee

meeting on Tuesday, again favoring heavy trading in bank stock options over concerns the

Federal Reserve

might raise interest rates.

Volatility, a key part of options prices, inched higher for most of the session as traders worried about a sharp selloff in the stock market. The option market's fear gauge, the

Chicago Board Options Exchange's Market Volatility Index

, or VIX, edged higher to bob slightly over 30, compared with a historical range of 17 to 25.

Among the most active were

Bank One

(ONE) - Get Report

, which despite relaunching an online banking Web site, saw its stock fizzle down 1 13/16 to 60 1/4.

"The August 65 calls are really moving around, but then again, all the financials have been smashed with bonds falling so much," said Scott Barker, portfolio manager with

Analytic Investors

, a Los-Angeles based unit of

United Asset Management

(UAM)

. Bank One's August 65 calls trading on the

Pacific Exchange

slipped 5/8 ($62.50 per contract) to 2 1/2 ($250) on volume of just over 2,500 contracts. Those traded on the CBOE slipped 13/16 ($81.25) to 2 7/16 ($243.75). Open interest totaled 6,930 contracts.

Also,

KeyCorp's

(KEY) - Get Report

share price slid 1 1/6 to 34 13/16. That and all the negative sentiment surrounding financial issues may have prompted the September 40 puts to pick up 1 1/8 ($112.50 per contract) to 6 1/8 ($612.50) on volume of 1,050. The corresponding open interest in that option series totaled a mere 10 contracts.

"It's going to be an interesting expiration," added Barker. "The market is cooling down a bit, and now it's a question of whether that will continue through Tuesday or through the end of the week."

Among technology issues,

Hewlett-Packard

(HWP)

call options were also active Monday ahead of an earnings release following the close of trading.

A trader in the Chicago crowd said at least one customer was rolling out of deep in-the-money May 55 calls and into November 60 calls to the tune of 6,500 contracts. "They've rolled this spread for the last 2 1/2 years, and that's that," he said. The May 55s dropped 1/2 ($50 per contract) to 30 ($3000) while the Novembers were down 1/2 ($50) to 27 1/2 ($2750).

When it comes to earnings, Hewlett has a

history of topping out a big run in the stock with a poor performance, though there was still plenty of call buying last week in anticipation of the numbers on Monday. (Call buying is generally interpreted as a bet the stock price will rise.)

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