No Panic to Puts Yet

The S&P 500 is breaking its trend line at 1408, and technical readings such as breadth and down volume are turning more negative.

The VIX has climbed 5% to 12.10 this morning. But the equity put/call ratio is still at a very subdued 0.58. The put/call on index products is running at just 1.55, well below the 3.0 level usually seen when fear is taking hold, suggesting there has not yet been a big rush to buy broad-market put protection. Without that downside protection in place, it will be difficult for funds to come in and buy dips, and it could leave the market vulnerable to another wave of selling.

Only the iShares Russell 2000 (IWM - commentary - Cramer's Take) have seen measurable put activity, with about 160,000 puts to just 50,000 calls traded thus far, with the January $77 put being most active strike. But even this is relatively low volume and not an extreme reading; past selloffs have seen the put/call ratio in the IWM hit 6.0 on volume of more than 500,000 contracts.

Shares of XM Satellite Radio (XMSR - commentary - Cramer's Take) have turned positive after an initial selloff following the company's disappointing subscriber growth numbers. The most active options are the January $15 calls, which have traded over 13,000 contracts thus far. The implied volatility is down some 10% this morning but remains fairly rich at shade over 50 in the February series.

Eastman Kodak (EK - commentary - Cramer's Take) is seeing some more activity in its LEAPs. Today's trade was the 2008 expiration, with the $25 calls and $30 puts each trading 10,000 in what looks like an opening purchase for a net debit of $9 for the gutsy strangle.

One of the biggest losers on the board is Herbalife (HLF - commentary - Cramer's Take), whose shares are down some 20% after issuing a warning. Its options have traded over 1,500 contracts so far, which is about 18 times the average daily volume.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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