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

Looking at Fortune Brands ( FO), we see that over 4,000 of the Sept 10 puts, 2,900 of the June 10 puts, and over 1,600 of the June 12.5 puts have traded. The current open interest in each of these put contracts was previously zero, according to the Sidewinder report at

What is interesting about this activity is that the bulk of the volume has been initiated by buyers. The September puts traded for around 65 cents, meaning the investor needs the stock to close below $9.35 at September expiration for the puts to make money. Likewise, the June 10 puts traded for around 40 cents, so those have a break-even of $9.60.

Shares of FO slumped Monday, falling more than the market. FO dropped over 6.3% on the day, to close at $17.86. That brings the 12-month return of the shares to negative 70%. The bear case for FO has been that its product mix, which includes Titleist golf clubs as well as Jim Beam and Maker's Mark whiskey, is getting pummeled in this recession.

Put-buying like this does not mean that investors should run right out and sell all of their shares in FO. After all, the put-buyer could be buying stock one for one with the puts, expecting a gap to the upside. However, it is worth nothing this activity because if these puts do become in the money, the stock would have to drop nearly 50% from already depressed levels.

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