Skip to comments.Options Report:Volatility's Quick Ease Makes Some Uneasy
Posted on 04/11/2003 12:35:33 PM PDT by Starwind
Options Report:Volatility's Quick Ease Makes Some Uneasy
By of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Mirroring a general lack of anxiety, the options market's volatility indexes continued to ease and are approaching levels that are worrying contrarians and more cautious traders.
The Chicago Board Options Exchange market volatility index, or VIX, slipped 1.12 to 27.84 Friday afternoon and has declined 15% this week and 29% since March 12. This broad-market fear gauge is now approaching the 27 mark, a level it had relaxed to during short-term stock-market tops in late-November and mid-January before stocks turned downward.
"The VIX has been dropping in a week when the market is flat to choppy, and that is abnormal," said Jay Shartsis, director of option trading at R.F. Lafferty & Co. He also pointed out how, on three out of five trading days this week, stocks had lost ground after opening or surging higher; the bearish signal from such intraday reversals, Shartsis said, doesn't quite gel with complacency reflected by the VIX.
The technology sector fear gauge contracted too, likely as investors see less risk of large moves in the short term. The CBOE Nasdaq Volatility Index, or VXN, fell 0.70 to 39.63 and is off 7.5% this week. VXN has not closed before 40 since April 23 last year.
Cautious investors continued to hedge their stock holdings. Given the pervasive view that the market is in greater danger of a gradual decline than a sharp fall, traders say they haven't noticed a big rush to buy puts. The skew, or differential between out-of-the-money puts and calls, remain flat in many stocks as investors keep up the demand for bullish calls. So a number of investors looked for spots to sell calls to harvest premium, even though this obligates them to sell stocks in an extended rally.
Applied Materials' July 17.50 calls traded more than 30,000 contracts. The stock fell 24 cents to $13. At the American Stock Exchange, the July 17.50 calls gained 5 cents to 35 cents as 30,500 contracts traded, compared with open interest of 14,901 contracts.
Apple Computer's options traded robustly, after news reports surfaced about Apple's interest in possibly buying Vivendi's Universal Music Group division. Apple's puts were active, perhaps as some investors worried about the computer company using its cash and stock to buy into a business whose growth prospects remain unclear.
Apple stock was off $1.25 to $13.12. Its May 12.50 puts traded 6,464 contracts, compared with open interest of 3,403 contracts, and were at 55 cents at the CBOE. Its July 12.50 puts traded 13,816 contracts, compared with open interest of 2,854 contracts, and were at 85 cents at the CBOE. .
-Kopin Tan, Dow Jones Newswires; 201-938-2202; firstname.lastname@example.org .
(END) Dow Jones Newswires
04-11-03 1530ET- - 03 30 PM EDT
This broad-market fear gauge is now approaching the 27 mark, a level it had relaxed to during short-term stock-market tops in late-November and mid-January before stocks turned downward.Daily VIX.