By Kopin Tan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The options market's fear gauge rose to reflect mounting anxiety in the unsettled market as investors mulled not just the prospect of war with Iraq, but also the risk of the U.S. pushing ahead of global opinion and despite the apparent reluctance of some allies.
The Chicago Board Options Exchange's market volatility index, or VIX, increased 2.37 to 31.05 to rise above 30 for the first time since Jan. 2.
Stocks sagged as investors found few reasons to buy, despite data showing strong housing starts in December and better-than-expected earnings reports from companies like Johnson & Johnson and Ford Motor Co. Those who ventured into the options market focused on companies scheduled to report quarterly earnings, using options to hedge their stocks or to position themselves from anticipated stock moves.
American Express Co. saw its puts trade briskly, with some investors buying short-term, defensive puts either as downside insurance for their stock or perhaps to express a bearish view. The financial-services company is scheduled to report quarterly results Jan. 27.
American Express stock most recently was off $1.10 to $35.83 Tuesday afternoon. Trading in its puts outpaced the calls. The February 35 puts traded 9,227 contracts, compared with open interest of 641 contracts, and rose 35 cents to $1.35 at the American Stock Exchange.
Qualcomm's options also traded actively ahead of its earnings report Wednesday. The calls outpaced the puts and investors, perhaps reflecting the hopes of some investors that the wireless technology innovator and chipmaker, having divested their equipment business, is better positioned to improve its profitability. The ratio of outstanding short-term puts to calls in the company also has eased from about 0.71 a month ago to 0.55 Tuesday, according to data from Schaeffers' Investment Research.
Qualcomm stock was ahead 64 cents to $37.44 Tuesday. Its February 37.50 calls traded 3,618 contracts, compared with open interest of 3,314 contracts, and gained 5 cents to $2.10 at the International Securities Exchange. The February 35 puts traded 1,067 contracts, compared with open interest of 6,340 contracts, and slipped 15 cents to $1.25 at the Amex.
Tyco International also will report earnings Wednesday, and investors who have weathered a rollercoaster year of management changes, accounting scandals, and weakness in its electronics business will listen closely to what the company has to say about its year ahead.
Tyco stock was off 83 cents to $17.04 most recently. Its at-the-money February 17.50 calls traded 5,250 contracts, compared with open interest of more than 38,000 contracts, and fell 30 cents to 80 cents at the CBOE. The February 17.50 puts traded 6,042 contracts, compared with open interest of nearly 27,000 contracts, and rose 40 cents to $1.20 at the Philadelphia Stock Exchange.
Meanwhile, Cypress Semiconductors' March 5 puts traded more than 15,000 contracts. From the trading price and the bid and ask spreads, it appears at least one investor was selling these puts to earn income, essentially not expecting the stock to slip below $5 by mid-March or the investor is willing to buy stock at that price.
Cypress stock was ahead 14 cents to $5.58 Tuesday. Its March 5 puts traded 15,106 contracts, compared with open interest of 1,333 contracts, and were at 40 cents at the CBOE.
Elsewhere in the options market:
- Timing is everything, in investing and in advertising, and the Options Industry Council has picked its spot: the OIC on Tuesday launched a television ad campaign to show investors how they can use options to manage their stock portfolios in this dreary and uncertain market.
In one animated spot, a suit rode alone in an elevator going up while others head down to illustrate how options can enhance returns even in a declining market. In another, the chap steps off a downward elevator to symbolize how options can set a floor for slipping stock. The point? To get investors to call for its (888)OPTIONS hotline for the OIC's educational software. The best part? It's all free.
"This campaign drives home the fact that stock options are valuable investment tools, and the serious investors owe it to themselves to learn about them," said OIC President Paul Stevens. The campaign was produced by Chicago's Creative Alliance and will run through the year on channels like CNBC and Bloomberg Television.
- Kopin Tan, Dow Jones Newswires; 201-938-2202
kopin.tan@dowjones.com
(END) Dow Jones Newswires
01-21-03 1531ET
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