In busy trading since Dec. 28, the number of
call-options contracts opened up on
has grown to more than 54,000 from 36,000 as the market has gone into the tank.
The investors buying those call
options, which appreciate along with the stock price, have been treated to a nice rally in WorldCom stock, courtesy of
Salomon Smith Barney
analyst Jack Grubman. Salomon has an underwriting relationship with WorldCom.
On Tuesday, with the market plummeting, Grubman "strongly reiterated" his buy rating on WorldCom, calling it the firm's top pick in the telecom services business. He also said he saw it meeting its 12% to 14% revenue growth projections and set a target price of 45.
That was enough to run the stock up $1.88 to $15.94 for the session. Today, the buyers continued to pile into both the shares and options on WorldCom as the stock rose $2.81 to $18.13 in the early going before tailing off to $17.75.
options traders Michele Skupp and Lillian Seidman noticed the call buying late last week. That it kept up through yesterday's carnage was interesting, and other analysts have taken note.
"WorldCom usually sees a lot of options volume, but this is extremely heavy since the price action
on the stock has been pretty poor," says Joe Sunderman, the head of research of
Schaeffer's Investment Research
in Cincinnati. "It's been increasing at a rapid pace."
Today's early rally provided some fuel for those options prices. The January 15 calls traded more than 3,000 contracts and popped 1 1/2 ($150) to 3 3/8 ($337.50) in the first hour of trading. The January 17 1/2 and 20 calls also traded on heavy volume. The January 17 1/2 calls ran 13/16 ($81.25) to 1 11/16 ($168.75) and the 20s jumped 1/2 ($50) to 13/16 ($81.25).
Some of today's early volume is likely coming from traders closing out positions that grew increasingly profitable in the face of the morning's rally and some call sellers initiating positions expecting WorldCom's stock move to run out of steam.
also got a little love from investors today, running $1.56 to $23.63 in the wake of some call action.
Today's move apparently also gave call option holders a chance to cash out positions in the January 20 contract, which jumped 1 1/16 ($106.25) to 3 5/8 (362.50) on volume of more than 6,000 contracts today.
More than 12,000 of those calls traded a week ago.
Still, the slight rally today hasn't eased much of the concern about the overall market, especially tech stocks.
Put activity in the out-of-the-money contracts on the
unit trust was brisk.
As the Qube rose 75 cents to $54.19 in morning trading, volume on the February 52 puts reached 9,100 against open interest of just 243 contracts. The trade could have been an investor selling the puts to pick up the option's four-point premium ($400) against the chance of the
If buyers initiated the trade, they might have been seeking an opportunity to buy puts in a rising market, hoping the get the contracts at a somewhat lower price.