Volatility Rises as Nasdaq Shudders

A scary Monday has traders shorting the Nasdaq 100.
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The onslaught hasn't yet arrived, but it could still be on its way.

Not surprisingly, the

Nasdaq

technology heavyweights got socked first; the key market index was down 88.44, or 3.24%, to around 115. Among the most actives were the Nasdaq 105 put options on the

Nasdaq 100

, or QQQ unit trust, with roughly 3,200 contracts crossed at a price of 1 13/16 ($181.25), bid up 5/16 ($31.25) on the

American Stock Exchange

. (Open interest, or the number of option contracts "opened" in this particular strike price, totaled just 122.)

The market's fear gauge, the

Chicago Board Options Exchange's Volatility Index

, or VIX, rocked its way solidly into 30s territory, hitting a high today of 32.53 before settling back slightly.

"If Greenspan can keep his mouth shut, maybe we'll get through this," said one Chicago-based trader, referring to

Fed

Chairman

Alan Greenspan's remarks at an Atlanta Fed conference at midday Tuesday.

Institutional option traders were hot on the trail of a hefty batch of

IBM

(IBM) - Get Report

puts traded early in the session, but otherwise, said one desk head, "I thought it was going to be a helluva lot busier."

IBM November 115 puts traded fairly briskly early in the session, roughly a 7,000 contract order spread over three exchanges, the CBOE,

Philadelphia Stock Exchange

and Amex. The stock was down 2 15/16 to 105 9/16.

Among the financials, at least one big investor put on what's known as a "spread" trade in

Merrill Lynch

(MER)

options, effectively getting long Merrill Lynch by using options.

The noticeable trade was in the November 70 and 75 puts, which one trader apparently played to the tune of 1,000 contracts each. Currently Merrill's November 75 put trades at a price of 12 5/8 ($1,262.50) and the November 70 put at 7 5/8 ($762.50), respectively. (A spread trade is one in which an investor holds an option position with both long and short options of the same type on the same stock.) Merrill's stock is down 9/16 to 63 11/16.

By selling the more expensive put and buying the cheaper one, the investor still remains a bettor that the more expensive put will expire worthless and thus is a bull on the stock.

Last week, rumors had circulated again that Merrill was an acquisition target of

Chase Manhattan

(CMB)

or

Bank of America

(BAC) - Get Report

.

Even if that chatter never gains any credence, the trade warranted some notice in the face of news that Merrill now faces off sooner than expected with

Morgan Stanley Dean Witter

(MWD)

in the

online brokerage arena.

Tiremaker

B.F. Goodrich

(GR)

, which rarely makes an appearance on the most-actives list, recorded a trade in the longer-dated options, the 2000 February 25 calls. An order for just over 1,100 contracts was done at a price of 3 1/8 ($312.50). Open interest totaled just 12 contracts before today's action.

And finally, a gutsy trade: a 2,000 call contracts in the December 20 strike of

Sangstat Medical

(SANG)

, a specialty pharmaceutical company working on treatments accompanying organ transplantation. The calls traded on the Philadelphia Stock Exchange for 5 1/4 ($525), while the stock was flat at 23 1/8.

Also, join us for an hourlong chat Tuesday, Oct. 19, at 5 p.m. EDT, with trader Lewis J. Borsellino. The trader, with Patricia Commins, co-authored

The Day Trader: From the Pit to the PC

.

Borsellino will discuss daytrading options and futures. Tune in for an hour of talk on Yahoo! Register at:

chat.yahoo.com. It's free!

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