Investors Hedge Their Exposure to Tech Sector

[HenryTo]

Investors Hedge
Their Exposure
To Tech Sector

By KOPIN TAN
DOW JONES NEWSWIRES
January 25, 2005; Page C4

NEW YORK -- They may not be threats to the overall stock market, but option traders are hedging their exposure to pockets of potentially vulnerable stocks.

Trading was cagey in the technology sector, as the Nasdaq 100 Index sagged. The tech-heavy benchmark has slipped 8.7% this month, prompting investors to limit their downside risk lest money continues to rotate out of the sector.

In the heavily traded options on the Nasdaq-100 Index Tracking Stock, or QQQQ (formerly QQQ), investors have accumulated about 1.92 outstanding put for every outstanding call -- near its highest over the past year, according to Schaeffer's Research.

Options on McAfee Inc. traded briskly, with some traders bidding up options and anticipating greater stock-price movement. McAfee on Friday had picked a date, Feb. 24, for its next earnings report that struck some traders as late. After all, the security-software company had reported earnings in late July and late October, and the market was bracing for its next quarterly report in late January. That spurred speculation that there might be red flags with its finances.

A McAfee spokeswoman said yesterday that its earnings date was scheduled later than usual because it has a new chief financial officer and a new auditor. McAfee named former Microstrategy Inc. financial chief Eric F. Brown as finance chief Dec. 14 and he took the reins early January.

McAfee shares were down $1.12 to $24.82 at 4 p.m. Its February 25 puts traded 2,327 contracts, compared with 1,092 previously outstanding, and gained 45 cents to $1.55 at the International Securities Exchange. The March 25 puts traded 2,278 contracts, compared with 1,038 previously outstanding, and gained 75 cents to $2.05.

Defensive puts on certain apparel retailers also traded briskly, after Jones Apparel Group on Friday slashed its 2004 and 2005 profit forecasts and sent its stock tumbling to a 52-week low.

Options on AnnTaylor Stores, for instance, were active. "Put buyers are buying downside protection because of peer company Jones's warning last week, and because they are concerned the East Coast's weekend blizzard might disrupt sales volume," said Paul Foster, strategist at theflyonthewall.com. In a sign traders expect the stock to jump around, implied volatility crept up to 40%, above the 52-week average of about 34%