Stock index options keyed to the biggest biotechnologycompanies might finally start trading next month.

At least that's an optimistic view from an official of theAmerican Stock Exchange, which had initially hoped to roll outits AMEX Biotechnology Stock Index onto the trading floor lastApril.

"We're ready to trade, it's just a matter of (the SEC) deciding onwhich way to go," Nathan Most, senior vice president in chargeof new product development in New York, told BioWorld onFriday

The ASE has been playing a wait-and-see game with itsexpected chief rival in biotechnology index options, the ChicagoBoard Options Exchange. The CBOE, in turn, has been awaitingon the Securities and Exchange to resolve a technical issueconcerning its CBOE Biotech Index.

Meanwhile, both exchanges have been reporting out the dailycloses on their respective indexes H on which no one can yetput their money. And officials of both are looking backlongingly at the hot and hyperactive 1991 market inbiotechnology stocks.

"I would have loved to have had this a few months ago," saidRichard DuFour, executive vice president of the CBOE. "I expectthe (trading) volume won't be what we had hoped."

What each exchange had been hoping their biotechnology stockindexes would produce was daily trading of about 1,000contracts. They are now talking of daily trading volume atabout half that level.

Options provide investors a way to purchase a stock, or in thiscase an index representing a collection of underlying stocks, atan agreed-upon strike price during a given number of monthsinto the future. The AMEX and CBOE options will have $5intervals.

"From a trading standpoint, people who trade options wantvolatility," Most said.

Index options are attractive in large part because they play offthe leverage. Investors can win H or lose H at a multiple to theresults they would achieve investing a like amount of moneyby directly buying a stock.

Both the proposed CBOE and AMEX options are price-weightedaverages, which will not reflect the relative market valuationsof each component stock. Both groups deliberately steered clearof using market valuations as the basis for their indexes forone simple reason.

"If you did, you'd have an Amgen index, not a biotech index,"Most said. In such an index, Amgen, with a market valuation ofmore than $8 billion, would exert an even stronger pull on abiotechnology index than IBM's stock price has had on theAMEX Computer Stock Index.

Still holding back the CBOE is a technical issue revolving aroundits desire to base the monthly settlement date on its options onclosing stock prices for the third Friday of each month. TheNational Association of Securities Dealers (NASD), whichrepresents the brokerage firms that "make a market" in mostbiotechnology stocks, has objected out of concern that a bumpup in trading of biotechnology stock at week's end could exposetheir members to risk in carrying stocks until the marketsreopen on Monday.

"The risk to the market makers is overblown," DuFourcontends.

The ASE's Most, who personally sees a small benefit toinvestors in using the closing stock prices, said he has heardthat the SEC will likely decide the issue within two weeks. "Wecould start trading the next day" after a SEC decision.

The CBOE's DuFour said he has heard no such prediction for anSEC decision, but his exchange also stands ready to put tradingof its biotechnology index options into play within 24 hours.

For the record, the CBOE Biotech Index closed Friday at 153.48,down 2.53 for the day; the AMEX Biotechnology Index closed at161.58, down 2.85.

WHAT STOCKS ARE IN THE INDEXES

Both CBOE and AMEX: Amgen, Genzyme, Biogen, ImmuneResponse, Centocor, Immunex, Chiron, Xoma, Gensia

Just CBOE: Enzon, Nellcor, Epitope, N. American Vaccine,Greenwich Pharmaceuticals, Scimed Life Systems,Immunomedics, St. Jude Medical, Ivax, Summitt Technology,The Liposome Company

Just AMEX: Cytogen, Mycogen, Immunogen, Scios, MedImmune,Synergen

-- Ray Potter Senior Editor

(c) 1997 American Health Consultants. All rights reserved.

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