Options traders and investors continued to sell January options contracts ahead of the long weekend, trying to take in as much premium as they could before the value of the contracts declines any more.

January options prices, or premiums, will be contracting notably for a couple of reasons: a drop in implied volatility in many options, and the time value of the options expiring in January is running out. The time value will decline rapidly because there's no trading on Monday in observance of Martin Luther King Jr. Day, and January expiration is next Friday.

The implied volatility portion of an option's price was "getting annihilated," in part because of the increased selling by investors, said Alan Goldstein of

Five Dollar Trading

in Chicago. Indeed, Goldstein said the theme of the last couple days has been investors selling options.

Generally, implied volatility falls when investors sell options and when the market rallies. Implied volatility is a key factor in an option's price and an indicator of uncertainty in a stock or index. Implied volatility doesn't indicate which direction traders think the underlying security will move, just the severity of the move.

If an investor is just selling the options and not closing out a position in which he or she had previously purchased options, the seller (also called the writer) gets paid for taking on the obligation to fulfill the other side of the contract.

As examples of big drops in implied volatility, Goldstein mentioned

EMC

(EMC)

, whose implied volatility for January options was 100 a week ago but now is 65. Implied volatility for

Siebel Systems

(SEBL)

also is plummeting, from 130 a couple days ago to 90 today, he said.

As for trading in Siebel options today, there was a notable amount of trading in the February 70 puts as the price of Siebel's stock tumbled. Siebel fell $3.63 to $69.50. The February 70 puts advanced 1 7/8 ($187.50) to 7 ($700) on the

American Stock Exchange

on volume of 4,370 contracts, compared to open interest (the number of contracts in existence) of 1,725 as of Thursday's close. The action today suggests traders are initiating new positions in that option.

A put option gives the purchaser the right but not the obligation to sell a security for a specific price by a certain time. Generally, investors buy put options to speculate on further downside on the underlying security, or as insurance against a long position.

Traders and investors went after the in-the-money January 60 put options on

Cooper Cameron

(CAM)

Thursday.

Volume in the options on the oil services company's stock was heavier than usual Thursday, with the vast majority of the volume in put options, according to a research note out before the open today by

McMillan Analysis

, of Morristown, N.J. Of the 2,610 options that traded on Cooper Cameron Thursday, 2,363 were puts, while only 247 were call options, according to McMillan. Average daily volume in Cooper Cameron options is only 607 contracts, according to McMillan.

Shares of Cooper Cameron fell $1.25 to $56.50 today. Put options appreciate when the price of the underlying security falls. On Thursday, 2,250 of the January 60 puts changed hands. There was no trading in the January 60 puts Friday. The January 60 puts were bid at 4 3/8 ($437) and offered at 4 3/4 ($475) on the

Chicago Board Options Exchange

.

McMillan wrote that if Cooper Cameron shares "were to close below 53, that would be very negative and the stock could then be shorted. Stock volume patterns are terrible."