Option volatility was higher on Monday after new fears of continued rate hikes arose from a stronger-than-expected manufacturing report.

The CBOE Market Volatility Index (VIX), which is based on the implied volatility of the S&P 500 options and is used as a gauge for fear in the market, was recently up 5.79% to 12.61. The CBOE Nasdaq Volatility Index (VXN), which measures the implied volatility of the Nasdaq 100, was recently up 5.86% to 14.09.

In General Motors ( GM), the January 2007 10 puts traded more than 21,000 times in early action. The trading of these out-of-the-money puts is likely hedging taking place in the credit default market. Also, the October 27.5 puts have traded 4,700 times and the October 30 puts have traded 3,100 times. GM was higher by 36 cents, or 1.18%, to $30.97.

In health care, there was heavy activity in Pfizer's ( PFE) October options. The October 20 puts have traded 6,500 times; the 22.5 puts have traded 5,200 times; the 25 puts have traded 28,000 times; the 25 calls have traded 19,700 times; and the 27.5 calls have traded 13,800 times. Also, the November 27.5 calls have traded 14,600 times and the December 27.5 calls have traded 15,700 times. The stock was up 13 cents, or 0.52%, to $25.10.

Sun Microsystems ( SUNW) saw a buyer of the October 4 calls 19,300 times. The calls were higher by 15 cents. Sun Micro was up 23 cents, or 5.85%, to $4.16.

In Time Warner ( TWX), the January 2006 20 calls traded 15,000 times. The buyer of these calls is expecting Time Warner to trade above $20 a share by January 2006. The stock was up 6 cents, or 0.33%, to $18.17.

Lennar ( LEN) had buyers of calls and sellers of puts in its October options after it was announced that the homebuilder will be added to the S&P 500, replacing Gillette ( G). The October 60 calls have traded 4,100 times; the October 65 calls have traded 2,100 times; the October 55 puts have traded 2,300 times; and the October 60 have traded 1,200 times. The stock was up $1.27, or 2.13%, to $61.03.

Southwestern Energy ( SWN) saw buyers of calls after J.P. Morgan initiated coverage on the stock with an overweight rating. The October 75 calls have traded 1,700 contracts and were up more than 200%. The October 80 calls have traded 2,700 times and were up more than 400%. Southwestern was higher by $8.20, or 11.17%, to $81.60.     

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