Option Traders Cocoon in Caterpillar's Downside Spread

Shares in Caterpillar (CAT - commentary - Cramer's Take) are up about a percent today to $38.83, trending higher with a number of industrial commodity stocks on back of China's half-trillion-dollar stimulus package.

One trader played against the share-price action in Caterpillar, seizing the opportunity afforded by lower put-side premiums by entering a 15,000-lot long put spread in the December contract using out-of-the-money strikes. The trader bought 35-strike puts for $1.53 per contract and sold 30-strike puts for $0.58, creating a 95-cent debit on a bearish position that breaks even for the trader at $34.05, or 12% below current levels.

Capturing its greatest profitability, within the range of the lower spread strike and the break-even point, the trade pays out more than four times the money at risk, a range that could imply a challenge of Caterpillar's standing 52-week low of $32.

Options on American depositary receipts of Harmony Gold (HMY - commentary - Cramer's Take) are attracting five times the normal level of contracts as shares read 1.7% higher at $7.01. It appears that traders are deferring a bearish view on Harmony shares until later in the spring, selling 2 January 2.50 puts (or closing out two long contracts at this strike) at 5 cents per contract to fund the opening purchase of May 2.50 puts at 30 cents per contract.

While the sheer quantity of contracts involved in this ratio calendar put spread was enough to push put volume to its highest level in a month, overall open interest in Harmony Gold has shown only a minor privilege to open put positions, and one that has remained stable for most of this year.

Part of the ongoing bearish fascination with the high-end casino and hotel space, options in Macau casino operator Melco Crown Entertainment (MPEL - commentary - Cramer's Take) are trading at more than 37 times the normal level today as shares post a 3% gain to $3.94. Melco is due to report earnings on Thursday, but option traders are by and large forgoing the front month in favor of a bearish strategy April, where a sizable 2-by-1 put spread involved a trader selling 2 $2.50 puts at 45 cents apiece and buying 1 April $5.00 strike at 95 cents apiece, creating a 5-cent debit on the transaction.

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At the time of publication, Darst had no positions in the stocks mentioned.

Rebecca Engmann Darst is the Portfolio Manager for TheStreet.com?s Options Alerts Portfolio newsletter and an equity options analyst for RealMoney Each Thursday at 6:30 a.m. EST, she delivers the early-morning lowdown on option volume and sector trends on CNBC's "Squawk Box." Prior to her work in the equity options market, she spent seven years in Scandinavia as a Copenhagen-based chief reporter for a European Commission news service, correspondent for Spanish daily El Mundo and Radio Netherlands, followed by stints at Nordea Bank and Saxo Bank.