Pity the Call-Buyers as IBM Tumbles

Options traders were expecting a big move, one way or the other.
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The personal computer sector is quickly turning into a minefield.

No one really had much of an inkling of

IBM's

(IBM) - Get Report

bombshell,

dropped late Wednesday, and the options market showed its surprise. The stock was down 14 3/4 to 92 1/4 early Thursday, and the November-dated puts exploded in value.

"We were a little active in IBM, did a small bit yesterday for customers who wanted to set up a trade that looked for a big move in the stock one way or the other," said one trader with

Wall St. Access

, an options trading firm in New York City. "And that's exactly what they got."

Those straddle players went right for the November 100 contracts. Those puts, way out of the money Wednesday, closed at 1 1/2 ($150 per contract) Wednesday, with volume of about 5,000 contracts. By Thursday, those same November 100 puts were fetching prices of 9 ($900) and higher. Pity the call-buyers who paid 12 7/16 ($1,243.75) for the November 100s only to see the contract trade for about 1 15/16 ($193.75).

The November 90 puts shot up from 7/16 ($43.75) to 3 1/2 ($350) as more than 6,300 contracts traded before 11:15 a.m. ET.

The stock market seems to be going through one of those bipolar episodes without medication, hooking itself into the most important earnings of the day. On Wednesday, it was

Microsoft

(MSFT) - Get Report

, and earlier this week it was

Dell

(DELL) - Get Report

that determined the direction of everyone else. "The stock market has no more than a one-day memory about now," said the trader. "All the techs are all over the place, and we're not seeing anyone taking any positions. We've been buyers and sellers, just flipping thousand lots."

The

Nasdaq

, meanwhile, proved to have posted a phantom rally and has dropped 1.52% to 2745.74. Massive basket trades in Microsoft and all the technology horsemen of the Nasdaq apparently lifted the market late Wednesday, but any follow-through the market was expecting from IBM never materialized.

Though the options didn't offer many hints about IBM, the next boxmaker to report earnings will be

Compaq

(CPQ)

, so options pros may be inclined to start weighing in quickly.

Compaq stock was down 1 1/16 to 19 3/16 Thursday morning; a look at at-the-money options indicated a bias so far toward the downside. The November 20 calls -- often viewed as wagers the stock will rise, since they represent contracts to buy the stock at that price at some point in the future -- have shed 3/4 ($75) to 1 ($100) on traffic of about 600, while the November 20 puts have gained 7/8 ($87.50) to 1 13/16 ($181.25) with about 1,500 contracts trading at midday.

Boxmaker

Gateway

(GTW)

was among the few tech soldiers spared any bloodshed Thursday, after releasing news of a multimillion-dollar investment by

America Online

(AOL)

as well as its

earnings late Wednesday.

Gateway's deal is viewed as a better kicker to earnings than its previous deal with

Yahoo!

(YHOO)

.

Gateway's stock was up 6 5/8 to 58 5/8. Gateway's November 55 calls ranked as the most actively traded options Thursday, with roughly 1,200 contracts traded in that strike price. That was likely inspired by some healthy profit-taking as the November 55s added 3 3/8 ($337.50) to 5 7/8 ($587.50).