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Put-Buying Plays Dominate After Tuesday's Troubles

Protection is the order of the day as the market shakes off Tuesday's slip.

Options investors slapped on their battle armor and raced to buy puts on Thursday.

"There's more of a protectionist attitude today and a fair amount of put buying," said Jay Shartsis, director of options trading at

R.F. Lafferty

in New York. The

American Stock Exchange's

dollar-weighted put-call ratio showed a high of $1.43 spent on puts for every dollar spent on calls, he pointed out. "That's a pretty high number, especially considering the panic in the Internet. Remember, though, that sort of panic leaves room for some upside."

Shartsis was referring to the kind of panic that dragged

Custom Tracks


, which is developing an Internet transaction payment system, to 55 today from 90 on Monday.

A move like that leaves little time to hedge. The play in the Internet bellwethers left a little more wiggle room, and it's an environment in which experienced traders thrive.

One of those spots was the June 115 puts in

America Online


, where volume of 1,206 placed it among the most heavily traded contracts at midday. The premium on the contract rose 1 7/8 ($187.50) to 10 1/2 (1,050) as AOL shares were down 1 3/16 to 113 13/16.

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"This has been kind of a whippy day," said another options strategist. "Techs were hammered at the beginning of the session and now they're clawing their way back."

Investors also were setting up some big straddle positions in names far removed from the Net ether, specifically


(PEP) - Get PepsiCo, Inc. Report



(KO) - Get Coca-Cola Company Report


A straddle is the purchase of an equal number of puts and calls having the same terms and is used typically when an investor expects a drastic move in a stock but is unsure in which direction it will be.

According to a

Chicago Board Options Exchange

floor representative, "there were some buyers of October 40 puts and calls, roughly 1,000 contracts each, but otherwise nothing major in size." October 40 puts gained 3/8 ($37.50) to 4 1/2 ($450) on volume of 1,950 contracts. October 40 calls slipped 1/4 ($25) to 2 1/4 ($225) with volume of 1,885.

Pepsi, down 1 1/4 to 36 1/4, has been an active trader recently. "There's been a lot of stock changing hands, and the price is relatively low because Pepsi has disappointed on earnings," the floor rep said. Volatility on Pepsi options has crept slightly higher, to 34 to 35, from its historical levels of 32 to 33.

"There are still people who like Pepsi as a cyclical, but this is an unforgiving market. The second quarter better be an improved one," he added.

In order for the Pepsi straddle to make money, "by October you need a move in the stock one way or the other. If the stock starts whipping around you can play both sides. It's cheap at these levels, assuming the volatility holds," the trader said.