Ken asks - "Would you say that the option game is heavily weighted towards speculation or is the majority of positions held as insurance???"

My response - this is an interesting question, and one that I don't have a definitive answer on. I believe that both motives are out there, but there is growing evidence that a third motivation may be driving volume. And that is option selling (writing). There have been a number of articles that detail the popularity of both put writing and covered call selling. Aside from the anecdotal evidence, other evidence hints that selling options is the latest trend. Just last week Eaton Vance launched a new closed-end fund that will sell covered calls on its portfolio.

As to the difference between buying a put for protection and selling one to generate income, I want to refer to some comments Bernie Schaeffer made in his April 2002 Option Advisor Commentary:

As Nassim Taleb states in his recent book, "Fooled by Randomness" : "A seller of out-of-the-money options is betting that an event will not happen; a buyer of these options is merely betting that it may happen. It is not how likely an event is to happen that matters, it is how much is made when it happens that should be the consideration." The bottom line is that there are a whole bunch of less-than-perfect scenarios that could derail this market rally. And there are another bunch of horrible scenarios that could lead to a genuine market crash. The risk is there and it's real. And the price for protecting against these negative outcomes is too cheap to pass up.

Yes, this text is from 2002, there seems to be an uncanny resemblance to the current environment. In fact, I urge you click on the link above to check out the entire commentary as it is a good illustration of how critical thinking can be applied to the market. (And then check out of weekly chart of the SPX from 2002.)

I think that this is a topic that deserves further exploration but I will need to give it some serious thought before rambling on...

Earlier today I referenced the The Wall Street Journal article that suggests Merck may have known about safety issues with Vioxx for some time. I just re-read the article in detail and must say it offers a very interesting insight. It is definitely worth a read if you haven't seen it...

NYSE net ticks spiked above 1000 a few minutes ago, but there was little in the way of follow-through as the indices remain near breakeven...

Note - click here for an explanation of why I look at this.

I just saw a report on TV that noted if you ignore the market-cap weighting of the SPX and give every stock the same weight, the index would be near its 52 week high. In other words, if you give less weight to the large cap stocks that have collapsed, things aren't that bad. This is a very similar theme to what I ranted about in my opening comments this morning - ignore the signs of weakness and focus on things that aren't that bad.

My only problem with this it - how does "reconfiguring" the index help investors who have been sold these large cap stocks. How much money is tied up in index funds that track the SPX as it stands now? Yes, the smaller stocks have done better but the average investor is probably heavily weighted to the large cap names.

I have no problems focusing on the positives, but I think it is important to realize that the average investor is probably not benefiting from "alternative" views of the market.

Given that the action in the major indices remains lackluster, I thought I would turn our attention to my sector list. Unfortunately, my list of 35 or so major sector Exchange Traded Funds (ETFs) shows little more than a mixed picture. Tech related concerns are trading higher while gold, drugs and energy related firms are trading lower. Overall though, the moves are fairly mute...

Top Five Performing Sector Exchange Traded Funds:

• iShares GS Software Fund (IGV) = +1.26 percent
• Internet HOLDRS (HHH) = +1.13 percent
• Telecom HOLDRS (TTH) = +1.01 percent
• Software HOLDRS (SWH) = +0.98 percent
• iShares DJ Telecommunications (IYZ) = +0.57 percent

Bottom Five Performing Sector Exchange Traded Funds:

• iShares DJ Energy (IYE) = -0.76 percent
• iShares DJ Healthcare (IYH) = -1.03 percent
• Oil Service HOLDRS (OIH) = -1.46 percent
• Pharmaceutical HOLDRS (PPH) = -1.55 percent
• Amex Gold Bug Index (HUI) = -1.67 percent