A leading institutional investor in the options market is seeing signs of a sell off as the summer ends. A Jefferies & Co. analysis of volatility and skew today in two major indices — the CBOE Volatility Index (CBOE: VIX) or “Fear Index”, and the SPX, or S&P 500 Index Options (CBOE: SPX) – find similarities to trading in the summer of 2007 when the market was close to hitting its all-time high.

The ‘Skew’ in the SPX is around 1.9, its highest level in about four years, suggesting that traders are willing to pay nearly twice as much for SPX puts as calls. That is typically a sign of a defensive move against a decline, according to Layla Peruzzi, a Jefferies vice president of equity derivatives sales who put together the analysis. Jefferies clients typically are hedge funds, asset funds and other big bucks investors.

“Traders are buying downside puts as they get longer in their (portfolios),” said Peruzzi. “There’s a concern for protecting their gains.”

Skew tracks the purchases of three-month SPX put options valued 10% less than the index versus the purchase of three-month SPX call options valued 10% more than the index.

The market today may be trading at highs with low volume, and it “may look hunky dory. But the market is very efficient. Some participants have concerns over future events,” said Peruzzi.

Two possible upcoming tsunamis are the end of QE II and an increase in interest rates by the Federal Reserve.

The Dow Jones Industrial Average closed at its all time high of 14,164 on October 9, 2007. By February 2009 it was valued at 7062.

 

Your intraday options trading update.

High Options Volume by Strike

The iShares MSCI Emerging Markets Index (NYSE: EEM) is down and the EEM May11 51 Call trades 71,285 contracts, down .15 to .45.

Citigroup (NYSE: C) remains busy with its C Jan12 5 Call is down .01 to .19 on 54,145 contracts.

This year’s model, the iShares Silver Trust (NYSE: SLV) stays busy with its SLV May 11 35 Put, trading 47,318 contracts, down .03 to .21. Just remember, there’s a new girl on the cover of Vogue every month.

SPDR S&P 500 ETF (NYSE: SPY) has several strikes in the top 10, including the AprWk5 134 Put and the SPY Apr Wk5 133 Put, each with more than 40,000 contracts traded.

Major Stock Trading Volume Movers

Savvis (NASDAQ: SVVS) trades nearly 20 million shares, up 3.25 to 39.27. CenturyLink will pay about $2.5 billion to buy Savvis, an IT, cloud-computing whatsit.

Longtop Financial (NYSE: LFT) down 1.50 to 20.74 on 8.3 million shares. LFT saw high volume of put trades yesterday. LFT provides software to China’s banks.

 

Find more option analysis and trading ideas at Options Trading Strategies.

Stocks/Underlying – Big Daily Change in Option Volume

VimpelCom (NYSE: VIP) sees option volume of 15,150 contracts, a rise of about 2200%. VIP is a telecom provider in Eastern Europe, Russia and Asia. It reported yesterday financing of a deal in Viet Nam. “Charley” may not surf but he does make phone calls.

More Savvis, trading 7,256 options, up 929%.

Stocks – High Put/Call Ratio

Pharmacyclics (NASDAQ: PCYC) sees its Put/Call ratio move to 200.00 as the stock trades up .15 to 6.42. PVYV yesterday grabbed a $7 million payment for its cancer treating drug.

Ascena Retail Group (NASDAQ: ASNA) has a P/C ratio of 87.33 as stock rises .18 to 33.11.

Stocks/Underlying – High Option Volume

SPDR S&P 500 ETF (NYSE: SPY) earns option volume of 723,000 as it rises .21 to 135.00. There were 215,686 options trading on the value of big brother S&P 500 Index (CBOE: SPX) as it rises 1.71 to 1348.95

The iShares Silver Trust (NYSE: SLV) sees options trading of 410,163 contracts as SLV rises .58 to 44.61.

The CBOE Volatility Index (CBOE: VIX) is up .2 to 15.64 and 209,000 contracts trade.

Burney Simpson is the managing editor of InvestorPlace options pages.