Bullish Action Continues In WCOM Options

  • January 3, 2001
  • Jon Najarian

This morning, Lehman
Brothers cut earnings estimates for Dell Computer
(
DELL |
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(
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PowerRating). They also lowered INTC’s 12-month price target because they see
further weakening in PC sales. The market’s reaction to that move was
immediate, as both tech stalwarts slumped (shares of Intel had traded down to
$30-1/4 in pre-opening, a drop of about 3/4, and Dell was down 1/2), but the
ensuing rebound back to positive territory was what we found more notable.

The economic picture and what the Fed must do were the catalysts for the
rebound, as hardly a trader here on the floor feels the Fed will be able to stay
on the sidelines until their January 30 — 31 two-day meeting. It remains a
mystery to most of us why the Fed failed in its duty at the December meeting.
They are not a group of greenhorns, with little experience in dealing with
economic mishaps. How they could leave the market floundering for over a month,
when the evidence was as clear as imprecise measurements get, is something
Chairman Greenspan and his colleagues will have to answer for in the coming
months.

One stock that is starting 2001 with a bang is WorldCom
(
WCOM |
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PowerRating).
Shares were up smartly yesterday and option volume was decidedly bullish, but
thus far this morning (9:40 am CST), the call buying is off the charts. January
15 calls are up 1 9/16 to 3 1/4 and the volume trading in the calls is already
9,000 to just 500 puts. When you look at the dollar-weighted volume of both the
15 and 17 1/2 calls to the puts you get an even more bullish reading. The 15 puts
are trading just 1/2, so in absolute terms, they are 1/7 of the
value of the calls, but when you apply the actual volume (9,000) to the dollar
volume, you get bullish readings that are extreme.

The institutional buying has also carried over into shares of Lucent
(
LU |
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PowerRating),
Cisco
(
CSCO |
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PowerRating), Ciena
(
CIEN |
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PowerRating) and Conexant
(
CNXT |
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PowerRating).

**For new subscribers, we use our dollar-weighted volume to measure
institutional accumulations on either the call or put side of the market. Call
accumulations are bullish, and put accumulations are bearish. The recent action
in WCOM calls is an example of the former.