Options: Risk Reversals in Dell and IBM

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Right out of the gate today, we saw investors selling off the upside of computer-makers Dell(DELL Quote) and IBM(IBM Quote) to decrease the cost of downside protection.

More than 10,500 Dell Jan. 2010 15 calls traded in the first half hour of the day with the stock trading at $12.69. These calls, which are currently trading down two cents, are home to current open interest of more than 13,000. Looking at the Jan. 2010 10 puts, more than 10,500 also traded during the first half hour of the trading day.

A customer bought the Jan. 2010 10-15 risk reversal, buying the out-of-the-money Jan. 2010 10 puts and simultaneously selling the out-of-the-money Jan. 2010 15 calls 10,000 times this morning. These puts are currently trading down two cents and are home to current open interest of 21,000. ...