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Internet Boom Stocks Start Attracting Put Buyers

With all the hoopla surrounding Internet stocks, and all the money being made on them, it's tough to find a market naysayer.

Companies such as



, up more than 80% since January, and



, rallying to 39 1/2 from around 10 during the same period, are basking in tremendous gains but a corner of caution is developing, slowly and quietly.

Starting late last week and continuing today, traders said, put buyers have entered the market, speculating on an eventual slide. Buying a put gives an investor the right but not the obligation to sell a stock at a certain price by a specified time, usually the third Friday of the option's expiration month. It is typically a bearish move. "I think the sector has reached the point of being beyond expectations," said

Salomon Smith Barney

options strategist Kevin Murphy. "The problem is: At what point does it turn around? We've seen a lot of blood spilled by people trying to call the top."

While the wide-eyed optimism that had call buyers riding these moves up remains, there's been a fresh infusion of red-blooded skepticism that the end, or at least a slip, is coming. "It

the Internet is going to be an industry someday," cracks John Platt,

Raymond James Financial's

head options trader. "But it will have to shake itself out."

For a snapshot, check out Infoseek's options. The May 35 puts, about $5 out-of-the-money, showed open interest of more than 1,600 while the equally out-of-the-money May 45 calls had a little more than 322 contracts in play, although today's volume could easily double that number. (Open interest isn't posted until the following morning.) Online bookstore

(AMZN) - Get Free Report

has a similar pattern developing. The May 90 puts, roughly $8 out-of-the-money at midday, had accumulated open interest of 1,166, almost double the amount of the May 100 calls. Amazon's May 95 puts posted volume of just under 600, and Infoseek's puts also had a little bounce, especially toward the end of the session, when the sector gave back a little of its gains on the day.

"It has the appearance of spec buying. There's a lot of thought that these stocks are extended," Platt said. "Traders feel that if there is a break in this market, this is an area that will give something back. I can see the reason speculators would play the put."

But despite this downside speculation, investors are still buying calls in the hope of further Internet stock appreciation. Yahoo options tell that story well. Its shares were near 125 near today's close and the put options from 115 to 125 traded a combined 1,200 contracts. Before today's action, the May 120 puts had open interest of just over 800. The May 130 calls, however, had more than 1,500 contracts outstanding and have traded another 700 today.

"If you mirror the calls and the puts, it shows there's speculation on both sides," Salomon's Murphy said. "People are willing to bid up the puts and the calls." The prices seemed rich on both sides of the aisle today, although put prices seemed to be coming in a little during today's trading.

A May 95 put on highflyer cost 6 1/8 late in today's session after slipping about 7/8 over the course of the trading day when the shares were trading at 97. Essentially, that pricing means the stock would have to fall from its close of 94 1/2 to less than 89 (95 - 6 1/8) for the investor to profit from the position.