Rolling Around: SPY, IWM, SIRI, XMSR

Despite the pipeline explosion up at the Canadian border that threatens to cut off nearly 20% of the U.S. oil and gas supply (perhaps because it has quickly been extinguished if not repaired), stocks are enjoying a relatively quiet day following their own explosive move upward Wednesday.

Looks like option traders are using the relative calm as an opportunity to make position adjustments that consist mostly of rolling positions to new and longer-dated strikes.

For example, the Spyder Trust (SPY - commentary - Cramer's Take) has seen the December $144 and $143 puts each trade 12,000 times in what appears to be a spread as someone is simply rolling up their put protection to one strike higher, that is, selling out their long $143 puts and buying the $144 puts, as a form of a trailing stop following Wednesday's rally.

In the Russell 2000 iShares (IWM - commentary - Cramer's Take) there was a four-strike trade in which the December $71 put and December $81 call and the January $69 put and January $83 call all traded 3,700 contracts. Because all strikes were sufficient to cover the trades, it's tough to say whether someone was moving a strangle from December to January or possibly setting up dual calendar spreads, sometimes referred to as a double diagonal because there are different strikes involved. If that is the case, it would be a bet that the recent volatile, large price swings will continue in the near term.

As the possibility of the merger between Sirius (SIRI - commentary - Cramer's Take) and XM Satellite (XMSR - commentary - Cramer's Take) increases but the timing is still open-ended, someone extended their bullish bet on Sirius as they rolled over 10,000 of the January $4 calls into the March $4 calls. Buying that extra three months of time cost 14 cents a contract.

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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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