Options Suggest Investors Are Wary Of El Paso, Quicksilver

As U.S. companies gear up to report the next batch of quarterly results, investors appear to be anticipating greater-than-average declines from a handful of stocks.

Among the stocks that are generating nervousness among investors are Starwood Hotels & Resorts Worldwide Inc. (HOT), El Paso Corp. (EP), Moody's Corp. (MCO) and Quicksilver Resources Inc. (KWK), according to analyses conducted by Goldman Sachs Group.

On the flip side, investors appear to be preparing for some stocks to stage greater-than-average advances. Among these names are Medarex Inc. (MEDX), Qwest Communications International Inc. (Q), Goldcorp Inc. (GG) and Barrick Gold Corp (ABX).

Strategists determine the likelihood of future moves by analyzing the "implied volatility" of the companies' options. Specifically, they compare the implied volatility on put options with the implied volatility on call options - a closely watched measurement known as "skew."

Puts convey the right to sell a company's stock and are considered bearish contracts. Calls, on the other hand, convey the right to buy a company's stock and are considered bullish contracts.

In cases where puts carry a higher implied volatility than calls, investors have shown a willingness to pay higher prices for those bearish contracts and are signaling nervousness over the stock.

"Typically, people look at these screens as a gauge of fear because if puts are more expensive, then people fear a gap move down more than they fear a gap move up," said Goldman Sachs derivatives strategist John Marshall.

The relationship between call and put options are constantly changing, and so rapid increases or decreases in skew could signal expectations for future moves.

Among the companies in which the skew has turned more bearish in recent sessions are Wendy's/Arby's Group Inc. (WEN), JetBlue Airways Corp. (JBLU) and General Electric Co (GE).

Meanwhile, skew has turned more bullish for Sara lee Corp. (SLE), DIRECTV Group Inc. (DTV) and Advanced Micro Devices Inc (AMD).

To obtain these readings, Goldman Sachs tracked changes in skew from June 16 to June 23.

-By Tennille Tracy; Dow Jones Newswires; 212-416-2183; [e-mail]