well-placed downgrades in the tech sector, major Nasdaq stocks also were getting their share of negativity from the options markets today, as put buyers stormed the walls to play for continued weakness.
As the Nasdaq tumbled 132 points to 2336 Tuesday morning to open the New Year on a decidedly pessimistic note, put option buyers speculated that 2001 will bring fresh pain to an already beaten-down group of stocks. To see that sentiment, investors had only to look at the
unit trust options, where more than 3,200 of the out-of-the-money January 51 puts traded. With the Q down 3 3/8 to 55 near midday, the January 51 puts jumped 1/2 ($50) to 1 11/16 ($168.75).
Options prices, already at expensive levels in key tech sectors, rose even higher Tuesday as the market reacted to the tech downgrades and continued economic weakness. The
Chicago Board Options Exchange
rose 8.4% to get closer to its 52-week high of 41.5.
The action intensified as the morning wore on. Some of the names that saw heavy put volume as they were knocked around this morning were
Critical Path, down $7.38 to $23.38 by midday, saw buyers ring up volume on more than 1,800 contracts on its January 22 1/2 puts, action that ran the price up 1 1/16 ($106.25) to 2 1/16 ($206. 25). With the spread on that contract growing to 2 1/4 - 3, the owners of those options seemed likely to see at least a little more appreciation in today's session.
Siebel tumbled 13% to $58.63 halfway through the day's action. Traders followed those shares by jumping into the January 50 puts, ratcheting volume up to more than 3,000 contracts and jacking the price 1 1/4 ($125) to 4 ($400). Some of that action could have been initiated by sellers, who saw a chance to take in a large premium -- that $400 price on the put contract -- against the chance of Seibel falling through 50 by the January 19 options expiration.
EMC, dinged by a
downgrade to attractive from buy, fell $9.19 to $57.31. That drop brought serious options volume in a host of contracts. While much of the action seemed related to spreads, the most obvious play was in the
in-the-money January 85 puts, which traded 8,400 contracts and jumped 9 1/8 ($912.50) to 28 ($2,800).
The traffic in that option was likely from an investor closing out a profitable position established when EMC was at much higher levels.