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A Day of Decisions in Options Market

One trader is evaluating his put-selling possibilities.

Don't think of today as a slow day in the options market, or a day when speculation has waned. Think of it as a day when traders are making decisions on what the market will do in the next few weeks.

The subdued action shifted back to players taking a bullish view on the market's short-term potential. "There's been a quick shift to call-buying today, but it tells me that most of a rally may already be done," said Jay Shartsis, the options head and resident skeptic at

R.F. Lafferty


Shartsis pointed to the equity put/call ratio sitting at 33, meaning that 33 puts were traded for every 100 calls, and the

Chicago Board Options Exchange Volatility Index

, which was down to 26 from last week's 30 levels.

Strome & Co.

options strategist Kyle Rosen said he is making a different determination on the activity that he's seeing today and that he's expecting a short-term jump in the overall market. As a result, he said, he's selling puts, expecting that those prices will come down as either the market rallies or options volatility contracts.

Rosen said he thinks the put/call ratio has been low because money managers who are underperforming the market have been "forced to chase the market" and haven't directed capital to hedge positions. "The last thing they want to do is buy puts," he said.

The uneven performance of many big-name stocks in the past three weeks has provided enough concern to keep many options prices high, even though the market has been range-bound. That sentiment, Rosen said, contributed to Monday's rally and his opinion on the short-term direction of the market.

Rosen said he's looking to sell puts that are 30% to 50% out of the money on


stocks or technology names that have apparently already had their tough times. Among those companies are


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(MSFT) - Get Free Report

, he said. "In a worst-case scenario, you end up owning the stocks at lower prices."

The strange trading in

Union Carbide


continued today as options volume and volatility stayed high early in the day but began to give way as the morning ended.

The chemical giant's stock was trading at 43, up 9/16, but the calls that are being used to speculate on a possible takeover lost 5/16 ($31.25) of their value to hit 2 1/16 ($206.25). Volume on those same options, the March 45 calls, broke the 1,000-contract mark, but the slide in premium means that runaway buying may have ended.