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An early selloff in stocks pushed options market sentiment gauges firmly in the fear category, but a bounce in the market has calmed some of the anxiety among options investors and traders.




Brocade Communications


were taking much of the blame for the selloff today.

took a look at the news out of

EMC and

Brocade in some earlier stories.

EMC options prices soared amid a mass dumping of the stock by traders. EMC tumbled $2.95, or 7%, to $40. It has managed to pull itself off an intraday and 52-week low of $34, however.

Implied volatility (a key component of an option's price and the market's estimate of how much the underlying security can move) in EMC soared to 104 for the March 35 options, while for options expiring in April, it was 91 to 93, said Paul Foster of

in Chicago. The move in implied volatility during the past few days has totaled 20 to 30 points.

Volume was moderate in EMC options. For options around the 40

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strike price, total volume leaned to the

put side, with about 7,200 puts trading compared to 3,600


The March 40 puts have traded more than 4,500 times on the

Philadelphia Stock Exchange

. The puts rose 2.70 ($270) to 6 ($600).

Meanwhile, market fear gauges surged amid the selloff. The

Chicago Board Options Exchange Volatility Index

soared as high as 32.96 before easing back. Generally, the VIX rises when put buying on the

S&P 100

, or OEX, increases.

Contrarian traders, which the options market is heavily populated with, like to see high readings on the VIX because it indicates that investors are afraid and are buying puts to hedge long positions. The more fear, the better, according to contrarian theory.

"There's definitely fear coming back into the market," said Alan Goldstein of

Five Dollar Trading


Meanwhile, the


, the

American Stock Exchange

volatility index based on options on the

Nasdaq 100 unit trust


, was higher, although readings on the QQV are still not nearly as high as they were late last year or in January. The QQV, which measures the implied volatility on certain options on the QQQ, has risen markedly over the past couple of days. The QQV rose 2.60% to 61.59, off a high of 64.26.

Another gauge of sentiment, the CBOE equity put/call ratio rose compared to yesterday's close. Late this morning, the equity put/call ratio was 0.71, compared to a close of 0.62 yesterday. Increased levels of put buying are viewed as positive by contrarians; however, the levels today, while an increase, aren't high enough to excite people into thinking the worst of the selling is over for stocks.

While the tumble in the market today was signaling some fear and negativity, a recent sentiment survey was showing the opposite.

The weekly release of the

Investors Intelligence

survey yesterday showed that the percentage of bulls increased this week compared to last week. The percentage of bulls among financial advisers polled rose to 61.2% from 57.8% last week, while the percentage of bears fell to 28.6% from 30.4%.

For most of February, traders have been enamored of put options on Northeast utility behemoth

Consolidated Edison



And yesterday, action in the puts was notable and the prices of the stock's options soared. Action today, however, was muted as Con Ed's stock rose 5 cents to $36.36.

Con Ed's stock has trended higher since mid-January. Since hitting a recent low of $31.43 intraday on Jan. 16, the stock has rallied, closing yesterday at $36.31, a rise of 15.5%. The stock's 52-week intraday high is $39.50.

The most popular option by far yesterday on Con Ed was the May 35 put, with volume of nearly 2,900 contracts on the American Stock Exchange. Judging by open interest (the total number of options contracts that have not been exercised or allowed to expire), yesterday's trading was mostly the initiation of new positions because open interest rose from 5,551 contracts as of Tuesday's close to 8,413 as of Wednesday's close. The May 35 put has by far the largest open interest of any option existing on Con Ed.

Traders and investors buy put options to either speculate on further downside in the underlying security or to protect a long position in the underlying security.

As for the price of Con Ed options, prices have surged lately, thanks to a spike in implied volatility. Foster of noted that today for the May 35 puts, the implied volatility was at 48 for the puts and 38 for the calls. The average implied volatility for Con Ed options is 24 for about the past six months, he said.

"They're expecting something," Foster said.

The aforementioned May 35 puts today rose 0.10 ($10) to 2.60 ($260) on volume of 10 contracts.

Meanwhile, the put buying in Con Ed is nothing new to the Seidman-Skupp options team at

Miller Tabak

. Con Ed has frequently turned up in the "put-buying continues" category of the team's daily report to clients. Also, the price of put options on Con Ed has popped up on their radar screen on occasion.

Apparently a few traders think something bad could be in the works for Con Ed, judging by the spike in implied volatility and in the volume in the options. Even if traders aren't speculating on a flat-out tumble in the share price, there are enough people worried about the possibility to buy puts on the stock.

As for news recently on Con Ed, earlier this week, following another leak at a Con Ed nuclear unit, New York politicians called on the company to discontinue powering the nuclear reactor back up, according to a


report. The leak was, however, on the non-nuclear side of the plant, the report said.

As for earnings, the company isn't expected to post its next quarterly numbers until the latter part of April. Last year, the company earned $3.14 a share. The 11-analyst

First Call/Thomson Financial

consensus estimate calls for the company to earn $3.21 a share in fiscal 2001.