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• Protective position extended on Smith

• SLB 100% Rate It

Takeover target Smith International has gotten battered along with the rest of the market, and now one investor is extending an insurance policy on the oil-service stock.

optionMONSTER's Depth Charge tracking system detected a trade for 5,000 June 36 puts for $1.30 at the same time an existing position in 5,000 May 42 puts was unloaded for $2.25. The transaction allowed the investor to collect a credit of $0.95.

SII is up 2.21 percent to $40.27 today but is still down some 18 percent in the last month. The company is getting acquired in an all-stock transaction by Schlumberger for 0.6966 shares per SII share. SLB rose 0.32 to $59.41, indicating that SII should be valued at about $41.38.

SII reported better-than-expected earnings and revenue on April 28 as drilling activity increased in North America. Management said it would boost capital expenditures to respond to the better demand.

The shares appear to be holding support at their 100-day moving average after the recent selloff. They've also partially filled the bullish gap that occurred on Feb. 22 after the SLB takeover was announced.

Today's option trade, known as a put roll, was probably implemented by a shareholder in SII who wants to hedge against further declines. It let him take some money off the table while obtaining an extra month of protection.

Overall options volume in SLB is about five times greater than average, with puts accounting for more than 99 percent of the activity.

(A version of this post appeared on InsideOptions earlier today. Chart courtesy of tradeMONSTER)

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