Rolling Up the Puts

Early action in the option market shows the Russell 2000 iShare (IWM - commentary - Cramer's Take) leading the most active list. Most of the volume appears to be investors rolling up and out their put protection.

For example, the December 73 and 75 puts have traded 72,000 and 30,000 contracts, respectively. About 80% of the volume was done at the bid prices, suggesting these are liquidating sales. Meanwhile, the January 76 put and March 75 puts have traded 27,000 and 19,000 contracts, respectively, in what appear to be opening purchases. Genitope (GTOP - commentary - Cramer's Take), a biotechnology company, has been seeing an increase in option activity, and implied volatility has risen to the 150% level, as a decision on its MyVax drug could be delivered with the next few weeks.

Wisely, as it's hard to exactly time when the FDA may issue a ruling or opinion -- and there are often delays -- most of the activity is focused in the January series, with the $5 call drawing most of the attention. Today, over 5,500 contracts have traded this far, and open interest in the strike has increased three-fold in the past four trading sessions.

Sorry I got off to a late start, but I was busy this morning getting a lot of paperwork together to sue the analyst that recommended I buy Sycamore (SCMR - commentary - Cramer's Take) at $100 a share back in 2000.

Everything was going great as the stock hit $200 a few months later, so it made perfect sense to withdraw those paper profits to put 10% down on a new home. Of course, I used an ARM because I wanted to have as much cash available as possible to keep buying more stocks and possibly a second home.

Long story short, when Sycamore fell and fell and ultimately landed at $5 a share, my stock broker gave me the requisite margin call. No problem. I can just flip my house for a profit and go on living the life. The problem was I lived in San Francisco, which saw property values drop along with the bursting of the tech bubble. Oops. No more stock profits, no more house.

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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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