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

Shares of the railroad companies are down more than the market so far today. Norfolk Southern ( NSC) has fallen more than 8%, Kansas City Southern ( KSU) more than 9% and Union Pacific ( UNP) more than 9% compared to the S&P 500, which was down just 3.6 % in the first five hours of trading. With the slides in the stocks, we are seeing option activity that suggests more downside slides could be in the offing.

Looking at Norfolk, we see that in the first five hours of trading today, 10,000 of the January 20 puts had traded. Five thousand of the January 35 puts had also traded. The volume all traded together as a put one by two. The investor sold the 35 puts for 11.1 each, and bought twice as many of the 20 strike for $3 each.

Looking next at Union Pacific, we find that in the August options, an investor bought the August 25 puts more than 7,000 times and sold the August 35 calls more than 7,000 times. At a price of roughly 2.20 in the puts and 5.20 in the calls, the investor collected $3 to do the trade, so will be profitable at expiration if the stock is below $32.

What makes these trades notable is that all of them will be the most profitable for the investor if the shares continue to slide. The bearish case for the railroad companies and the Dow Jones Transportation index in general, has been that there is nothing to ship. But in addition to that problem, now over the last few months there has been action from Washington that could harm the railroads.

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