Fear on Hold for Fed *AND THEN IT WAS FRIDAY*.
The trading week seemed to come to a sudden end after much ballyhoo, some pullbacks and a flurry of analyst ratings changes. Uncertainty about the future -- even as the Standard & Poor's 500 Index nears the top of its trading range at 1490 -- seems to have stalled the options market's fear gauge, the Chicago Board Options Exchange's Market Volatility Index (VIX), at about 25. The fear premium is likely to remain elevated until Tuesday's meeting of the Federal Reserve. The market expects the Fed to lower interest rates, though the stiffness in the VIX, and the interest in using options on exchange-traded funds like Nasdaq-100<http://online.barrons.com/quotes/main.html?type=djn&symbol=qqqq>, Russell 2000<http://online.barrons.com/quotes/main.html?type=djn&symbol=iwm>and Standard & Poor's 500<http://online.barrons.com/quotes/main.html?type=djn&symbol=spy>suggests some investors are hoping for the best and preparing for the worst. The VIX will probably hover around 25 until some of the big news is out of the way. The best-case scenario is that the Fed cuts rates by 50 basis points at Tuesday's meeting. In the worst case, the Fed does nothing, or does not do as much as expected. With September options expiration looming this coming Friday, and earnings reports due during the week from Bear Stearns<http://online.barrons.com/quotes/main.html?type=djn&symbol=bsc>, Goldman Sachs<http://online.barrons.com/quotes/main.html?type=djn&symbol=gs>, Lehman Brothers<http://online.barrons.com/quotes/main.html?type=djn&symbol=leh>and Morgan Stanley <http://online.barrons.com/quotes/main.html?type=djn&symbol=ms>, some traders think the Fed may take a give-some, look-some approach. Jon Najarian, co-founder of optionmonster.com, thinks the Fed will lower rates by 25 basis points on Tuesday and wait to see how that influences the credit markets. Then the Fed will review bank earnings, and then maybe take action one more time before the market opens on Friday, which also happens to mark the September options expiration. "You can't always get what you want. The market is probably going to get what it needs. It wants 50 basis points, and it's likely to get a 25 basis point rate cut," says Najarian, who once owned one of the largest CBOE specialist firms. Elsewhere, Coldwater Creek<http://online.barrons.com/quotes/main.html?type=djn&symbol=cwtr>is attracting unusual attention from institutional traders. With the stock up slightly at about $12.21, upside call buyers are piling in, buying thousands of October 15 calls. The stock has been crushed since late August when it reported earnings well below analyst estimates. There's no news on the stock, which makes the call buying even more unusual. Watch this one.
