Option traders were combing through the cast-offs Wednesday and expending substantial energy swapping the puts and calls on stocks trading under $5.

The January 2007

Nortel

( NT) 2.50 puts traded more than 20,300 times. The open interest for the strike was 3,800 contracts. With the shares trading at $2.79, the buyer of the puts could be anticipating a further downside move in the Canadian telecom gearmaker's stock.

Meanwhile, New Jersey's

Lucent

( LU) saw its own January 2007 puts, also striking at 2.50, trade 18,000 contracts for 25 cents. Open interest for the strike is more than 74,000 contracts.

Lucent, lately at $2.76 a share, has a 52-week trading range of $2.35 to $4.06, and the stock has been a member of the sub-$5 club for more than three years. As with Nortel, a trader might have bought the puts in anticipation of continued weakness in the stock. Alternately, an investor who was long the puts and thinks the stock could be heading higher might have carried out the trade to close their position.

Struggling power-plant operator

Calpine

(CPN)

had the January 2007 calls with a 2.50 strike exchanged 17,000 times for 10 cents a contract. A buyer here would be looking for a cheap way to play a potential move up in the stock from Calpine's current level at 53 cents.

Elsewhere,

First Data

(FDC) - Get Report

had the January/February 45 call spread trade 9,700 times. With this type of trade, also known as a time spread or a calendar spread, the January calls would have been sold and the February calls simultaneously purchased.

The trader will want First Data's stock to remain at or below $45 at January's expiration and then break through the strike heading into February. If the stock remains at $45 or less approaching February's expiration, the trader could then choose to sell those February calls and buy the next series out, which expires in May. Shares of First Data were down 61 cents, or 1.4%, to $43.62.

Options on

IBM

(IBM) - Get Report

,

Yahoo!

(YHOO)

and

NTL

( NTLI) were also being actively traded.

IBM's December 90 calls traded 9,900 contracts, which is almost half of the open interest. The stock was up 32 cents to $89.42. Yahoo!'s December 45 calls moved 9,400 times. That stock was gaining 7 cents to $40.26.

NTL's January 45 puts changed hands 11,200 times, almost equaling the open interest, in a trade that suggests a position was being closed. Shares of NTL were off 43 cents, or 0.7%, to $58.35.

The market's fear gauge, the CBOE Market Volatility Index, or VIX, was unchanged at 11.87. The VIX is based on the implied volatility of the

S&P 500

options. The CBOE Nasdaq Volatility Index, which measures the implied volatility of the Nasdaq 100, was down 1.3% to 15.21.