Traders Try On Tommy Earnings Play

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While some of the more tender, peach-fuzzed options traders of the world are likely to wear

Tommy Hilfiger

(TOM)

duds every day, they're not very likely to trade the trendy clothing company's puts and calls.

With earnings just a day and a half away, a sense of urgency to play an expected bounce is starting to seep into the markets. Tommy's stock is strong today, trading up 2 7/16 to 69 3/8 by midday, and the options traffic is following nicely. The July 75 calls posted early volume of 498 contracts compared with open interest of just 28 contracts. The June 70 calls, a more obvious earnings shot, traded more than 341 contracts on open interest of just 219 contracts.

What's more is that these options are seemingly as in demand as one of Tommy's oversized polo shirts. The price of the June 70 calls rose 1 ($100) to 2 5/8 ($262.50), and the July 75 call price jumped 13/16 ($81.25) to 2 1/4 ($225). "The volatilities are usually around 54; today they're at 85," said

1010WallStreet.com

strategist Paul Foster. "That's a huge volatility spike, and, with earnings due Friday, there's some concern."

Not enough concern, apparently, to warrant any straddles, strangles or other risk-reduction strategies involving calls and puts. The only interest in any put was about 15 contracts traded in the June 65 options, a small attempt to speculate on disappointing earnings.

Analysts estimates are solidly at 68 cents per share for Tommy Hilfiger for its fourth-quarter numbers due out Friday.

*****

As the

Ciena

(CIEN) - Get Report

-

Tellabs

(TLAB)

deal news settled into the market, telecom equipment firm

DSC

(DIGI)

options moved to a second strong day based on fresh takeover speculation.

Halfway through today's session, the company's June 20 calls were trading heavily, but the speculators took aim at options in the July expiration month. DSC was trading up 1 to 19 as the action hit its July 22 1/2 and 25 calls. Volume on each series was over 1,000 contracts, and the prices of each also rose today.

The newly at-the-money June 20 calls rose more 1/2 ($50) to 1 11/16 ($168.75) on volume of more than 4,800 contracts today. Yesterday, DSC's out-of-the-money June 20 calls and its in-the-money July 17 1/2 calls moved heavily late in the day, trading 4,621 and 2,284 contracts, respectively.

The strike prices being played are "typical" of takeover speculation, said one Wall Street options analyst, adding that playing the July options is a prudent strategy. "In a situation like this, time isn't going to hurt you." Savvy options traders play takeovers two months out so their options don't expire before they can benefit from the price appreciation involved in most deals.

"The vols are higher, the volume is up, it's a good day to be speculating," Foster said.