Options action in tech stocks has taken on the same poor visibility about the future that's afflicting the companies in the sector, sending few clear signals on where big players think the market is going.
Typically, the options market is a great place for investors to get clues to the mind-set of savvy institutional investors who play there. If they're buying
calls on a down day, it can predict a market turn. If they're running to
puts, it could mean trouble. These days, though, there are few clear signs, especially in the tech sector.
In the case of
, though, put buyers seem to have won the day, so far, as the company fell almost 8% in morning trading.
But traders were playing put options in some significant size on
America Online-Time Warner
. At the same time, trading began Friday with a position being built on more than 11,000 March 55 calls on
On Thursday, rumors of a potential Texas Instruments preannouncement dragged on the stock and brought out options traders who bought March 35 and 30 put options in sizable chunks. As Texas Instruments fell $2.45 to $30.25 today, the value of those puts climbed. At midday, the March 30s were trading up 80 cents to $2.30 ($230 per contract) and the March 35 contract had risen $1.80 to $5.70 ($570 per contract).
Lillian Seidman, half of the Seidman-Skupp options teams at
, said Texas Instruments' March options prices showed a little pop, as investors moved into the puts, but the options that expire in future months didn't move much.
On Friday, after
said its quarterly performance would fall short of expectations, puts lovers were out, but not in great force and possibly expecting more bad news from the sector. The April 30 puts traded 540 contracts and the March 35 puts showed volume of about 600 contracts by midday.
While investors were vigilant in watching for danger signs in tech stocks, Seidman said she was surprised there hadn't been many dramatic increases in implied volatility -- an options measure that reflects uncertainty about a stock's prospects. She said she's seeing relatively low implied-volatility levels -- which result in relatively low options prices -- in key tech stocks like
Advanced Micro Devices
"There's an enormous discrepancy between what's happening in the
index shares options, where there's high volatility, and the cheap volatility we're seeing in some tech names," she said.
Still, traders said they were seeing mildly bullish signs, as a major firm came into the market selling so-called put spreads on stocks including Cisco and
during the past week.
Put spreads are positions in which an investor buys one put option and sells another. If the investor is bullish, he will sell the higher-priced put, which obligates him to buy the stock if it reaches that level. By buying the put -- getting the right to sell the shares -- with the lower price, it creates an escape hatch if the stock sinks to that strike price.
The AOL action was huge, as more than 50,000 of its March 45 puts changed hands. That action pushed the price of those puts up 80 cents to $3.90. AOL was down $2.63 to $42.28 at midday.
That traffic made the 15,000 contracts that traded in JDS Uniphase's March 35 puts seem downright paltry, as the stock fell $1.13 to $29.44 at midday.