By Jud Pyle, CFA, chief investment strategist for the Options News Network

Around 3 p.m. EDT today, an investor in

Valero Energy

(VLO) - Get Report

sold off the upside of the stock to decrease the cost of downside protection in a long-dated collar spread.

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The investor sold the Jan. 2011 12.5-20 risk reversal, selling the out-of-the-money Jan. 2011 20 calls and buying the out-of-the-money Jan. 2011 12.5 puts, 15,000 times for 15 cents with the stock trading at $16.10 a share. The Jan. 2011 12.5 puts, which closed up nine cents on the day, changed hands 20,000 times and were home to open interest of 6,804. The Jan. 2011 20 calls, which dropped 34 cents on the day, were home to open interest of 2,745. Approximately 20,300 of these contracts traded today.

Normal daily options volume in Valerois about 25,000 compared to the 53,000 contracts that changed hands today.

The volume weighted average (VWAP) of the Jan. 2011 12.5 puts is $2.30, while the VWAP of the Jan. 2011 20 calls is $2.45. That equates to a net credit of 15 cents for this collar.

VLO stock closed down 53 cents to $16.03, despite the broader market and commodity-related stocks rallying in general today. The downside move in Valero could be the result of a downgrade by

Oppenheimer

, which lowered its rating to "perform" from "outperform."

This collar is not altogether bearish. Remember, the investor could be long shares against this spread and is truly using the options as a hedge, rather than an outright bet on a decline in the shares. Valero has failed to participate in the rally of the past three plus months, so this could be an argument for the bull case.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."