Put Action Heats Up as Bears Maul Options

Lucent and other techs see some bear attacks as puts rule the options market.
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The dipping

Dow

and falling

Nasdaq

brought out the put investors today in the options market as put activity spiked, possibly signaling a bearish mood on Wall Street, at least among the options crowd.

The put/call ratio on the

Chicago Board Options Exchange

grew to 0.43 on today's volume, meaning that calls were outpacing puts by about 2-to-1. Among the open interest -- the ratio of previous calls and puts -- the pace was more like 3-to-1.

Scott Fullman,

Swiss American's

chief options strategist, said the mood has definitely been turning slightly foul in the options market, although the money hasn't dried up. "Investors are still willing to pay up for the puts," Fullman said, adding that the high premiums investors are paying have driven up volatility, an indicator of premium prices. The

Volatility Index

(VIX) was up about 10%, as it moved past 30 again after dropping over the past week. The VIX was 30.38, up 2.43, this afternoon.

"It's like a measurement of the fear factor," Fullman explained. "Everybody gets leery -- especially with the Nasdaq coming in so much."

Throughout the options market, techs were dominating as their stock prices were dropping.

Microsoft

(MSFT) - Get Report

and

Cisco

(CSCO) - Get Report

were seeing tremendous volume, especially on the call side, possibly indicating some call-selling.

Lucent

(LU)

was a good example of a tech under attack, according to Leon Gross, options strategist for

Salomon Smith Barney

. "People are trying to get short Lucent -- they were selling calls yesterday and are buying puts today," he said.

Most active on Lucent were the July 95 puts, which traded 3,600 contracts. The March 90 puts traded 2,500 contracts against open interest of only half that amount, and the April 100 puts moved 2,100 contracts. On the in-the-money side, the February 115 puts moved 2,100 contracts. Lucent's stock was down 4 11/16 to 105 5/16 this afternoon.

Besides the put action, another negative indicator was the

Philadelphia Exchange Utility Index

(UTY), which has dropped almost 10% since mid-December. The index, down 1.82 to 320.22 today, has always been a good early warning signal for the rest of the market, said Fullman, adding that the index presciently pointed to the downturn in the market in 1994 when the Dow dropped 3.6%.

All was not dark everywhere, however. Some isolated issues were seeing call activity.

Kmart

(KM)

, which announced solid same-store-sales results this morning, saw continued call-buying in its March 17 1/2 and 20 calls, said Joe Sunderman, senior research analyst at

Schaeffer Investment Research

.

"I think investors saw the same-store numbers as good and think it's OK to get in here," Sunderman said, adding that similar call-buying also took place yesterday. Kmart's stock was 18 3/16, up 5/16, this afternoon.

Chase

(CMB)

, too, saw some call-buying a day after it was linked to

Morgan Stanley Dean Witter

(MWD)

in merger rumors. Chase's March 85 calls traded 1,170 contracts against only 547 open-interest contracts. Chase, which would not comment on the rumors yesterday, saw its stock down 1 today at 78 3/8.

On the rarely traded side of the options world,

Illinois Tool Works

(ITW) - Get Report

saw heavy rollover action as an investor closed out a batch of March 50 in-the-money calls and sold another batch of September 55s. Both trades moved 2,175 contracts. Illinois Tool's stock was down 7/8 to 65 3/8.