Waves of unsettling earnings news and stock market index declines are crashing over the options market, so investors are clinging even more tightly to the mergers-and-acquisitions raft.
With the October expiration just a day away, the
Standard & Poor's 100
index, or OEX, has broken a key support level of 675 (it's now trading at 665.6, down 5.6), which could rock Friday's trading if sell programs kick in.
was still unsettling the options market, even as analysts rained down positive comments and ratings reiterations following a comfort call with executives.
Most of Wednesday's volume before Tyco was halted was in October-dated options, according to one institutional options trader. "To me, that's an indication that not many people saw this coming, and that Tyco trading at that time yesterday was mostly expiration-related," she said. "I'm sure a lot of people were caught the wrong way."
Current trading in Tyco options indicates that not many investors are "rolling" out their bets from October options into November or following months: There were few October-November trades at the same time or contract size. In fact, options investors opened up new positions in November 80 puts -- to the tune of roughly 1,500 contracts -- whereas before Thursday there were no puts even available at that strike price (November 90 puts had been the lowest). November 80 puts were fetching roughly 3 ($300 per contract). The stock, meanwhile, was down 7 1/2 to 89 1/2 after a 6% retreat Wednesday.
If OEX index option-trading reveals anything, the bias among investors Thursday was they expect to swallow more water. OEX holders were unloading call options, which are seen as bullish, and bidding up put options, which are generally considered bearish. October 670 calls slid 2 1/2 ($250) to 3 3/4 ($375), while October 670 puts gained 1/2 ($50) to 6 1/2 ($650).
But never mind all that. There are deck chairs to move around while the ship is sinking.
With earnings due out Thursday,
emerged from the shadow of last month's news about its uncertain relationship with
, and Rambus shares gained 2 5/8 to 74. Anticipation is that turning up in options of memory-chip designer Rambus, a hint at some sort of reaffirmation from Intel. However, historically there's been a lot of
betting both ways on Rambus, and that has been the case for months in the options markets.
Rambus call options with an October 75 strike gained 7/8 ($87.50) to 2 15/16 ($93.75), while the October puts slipped 1 1/2 ($150) to 3 1/8 ($312.50). Remember, October-dated options are going to expire at the end of this week, so these heavily traded options are one-day bets at most.
ESP on DSP
finally got scooped up Thursday by
, for $1.6 billion in cash. Intel is paying $36 a share for DSP, a beefy premium over DSP's closing price of 28 Wednesday.
Call options in DSP had been active earlier
this month. At that time, October 25 calls nearly doubled in price to 1 7/16 ($143.75). This Thursday, those same calls were trading at 10 1/8 ($1,012.50), and the stock was up 7 1/8 to 35 1/8.
(Call options are contracts that grant the buyer the right to buy stock, usually 100 shares, at a set time and price in the future. Oftentimes when a company is in play, investors will make a bet with call options, which can explode in price if the acquisition comes through.)
Illinois Tool Works and Comsat
Speaking of which, here's a last note on
Illinois Tool Works
, both of which logged some interesting options activity Thursday with no particular news swirling around.
Comsat's already sagging stock fell even further, down 1 5/16 to 23 11/16, and the October 25 puts clocked a huge trade of over 1,600 contracts. The price for the puts came in at 1 1/2 ($150), up 13/16 ($81.25).
Illinois Tool Works, trading at 75 5/16, down 3/16, saw its November 75 puts log a trade of 1,000 contracts. The price of the puts ticked up 1 3/16 ($118.75) to 3 7/8 ($387.50).