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Cheap Puts Can't Be Had

The time for a cheap shot at protection is over as put plays increase.

So what's the smart money doing as the wheels come off


stocks? Judging from one Florida money manager, just watching their puts appreciate, that's what.

From his base in sunny Florida, Rob Sorrentino, of the eponymous asset-management firm, says he took advantage of some low put prices earlier this week to buy some protection. It looks like he made the right move so far.

"We got hedged a few days ago; we bought some cheap

S&P 500

puts," Sorrentino says. "Premium was so low, we were paying peanuts for them. Today, they're looking a little fat."

Those premiums had gotten a little fat because in the wake of some shaky days for tech stocks and lacking a strong sector to fill the vacuum, investors had returned to trading puts. Today, the

Chicago Board Options Exchange

put/call ratio was up to 0.48, the level contrarian options traders will typically label bullish because enough fear has emerged in the market.

S&P 500 put options showed that price bloat this morning, especially the out-of-the-money strikes. With the S&P trading down 11 points to 1237.20, the February1230 puts were trading for 21 1/2 ($2,150), up 3 1/2 ($350) on the day. The February 1220 puts were going for a similarly stout 19 1/8 ($1,912.50), up 4 1/2 ($450).

"It's been time to take some profits," says David Schultz, president of Summit Capital Holdings. "It's been too easy for money managers like me to do that. We're waiting for a change in leadership."

Back in Florida, Sorrentino says he was waiting for an opportunity to close out his puts and redirect the capital into calls in sectors he thought had some upside. One in particular, he says, was oil services. "We're looking at


(SLB) - Get Free Report


Global Marine


," he says.

Schlumberger shares were already up 1 1/16 to 52 1/2 today, and there was some action in its February 50 and 55 calls. Global Marine was basically flat at around 8 1/4, but its February and March 10 calls each traded more than 250 contracts this morning.

Meantime, a steady rally in shares of



has been carrying over into the airline's options play.

In mid-January, Paul Foster of

noticed some higher volatilities and rising volume. But in the past four days, the stock has climbed from 4 3/4 to 6 9/16.

If that run is over, it'll be a shame for the call buyers who today were taking aim at the March 5 and March 7 1/2 calls. The March 7 1/2s traded about 250 contracts at 5/16 ($31.25), while volume on the in-the-money March 5 calls bounced over 200 early in the day. Those contracts may be valuable if bigger news is in the offing.

Foster, for one, isn't ready to read too much into the move, attributing it to a recognition by investors of some fundamental value in the airline's brand name and routes. "There are a lot of overvalued assets; this is an undervalued one," he says.