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Rebecca Engmann Darst co-authored this article.

(WHR) –Whirlpool Corp. – Shares in the world’s largest maker of home appliances advanced more than 10% to $90.30 this morning after its Q4 profits beat analyst estimates thanks to overseas sales, and synergies from its takeover of appliance maker Maytag were finally realized. Interestingly, Whirlpool’s ominous conference call warning that it anticipates a 13% drop in existing home sales this year, and a 25% decline in new housing starts, had a counterintuitively positive impact on shares in the likes leading homebuilders such as KB Homes, which we’ve detailed below. With Whirlpool options trading at nearly 4 times the normal level of activity, traders are sticking to the at-the-money strikes, buying and selling February 90 calls at twice the existing open interest, with heavy traffic at the same strike in the puts as well.

(KBH) – Today’s Whirlpool warning on the housing sector outlook for 2008 slid like rain from a fine-tiled roof in leading homebuilders such as KB Homes. Shares in the custom homebuilder gained 2.8% to $27.15, after a Bank of America upgrade of the sector predicted increased demand for new properties on back of lower home prices that could yield as much as a 20% premium for sector stock prices. With more than 20,000 options trading before noon, however, option traders appeared to stick to a defensive near-term view for KB Homes shares, with heavy buying in February puts at strikes of 25 and 30. This is a hint that option traders are largely distrustful of the near-term gain in sector share prices, but the outlook further out does show signs of cautious optimism – for that, we’ll take a look at the sector ETF.

(XHB) –Shares in the SPDR S&P Homebuilders ETF, whose components include homebuilders such as KB Homes along with home improvement retailer Home Depot, gained 1% to $22.08. The implied volatility reading at 71.7% and climbing indicates that current premiums are reflecting about 13% more price risk in homebuilder shares over the next month than is already apparent from the 63% degree of turbulence they have already shown. But our interest was drawn to the June calls, where it looks as call spreaders were lured from the woodwork at strikes 30 and 31. Selling the higher-strike call for 70 cents virtually covers the entire purchase of the 30 call – sharply limiting the cost basis of the trade in anticipation of a return to price levels in the ETF not seen since mid-July 2007.

(AIG) – Meanwhile, fears about new and expected contagions emanating from the ongoing credit squeeze hit hard at other sectors. Shares in American International Group, the world’s largest insurer by assets, declined more than 4% to $53 ostensibly on “credit exposure concerns,” this despite last week’s unchanged credit rating by Moody’s for mortgage insurer United Guaranty Corp., which is an AIG subsidiary. But it was the degree of unusual volume in out-of-the-money AIG puts, and their concentration in the May and August contracts, that seized our attentions as noteworthy. Implied volatilty at 52% shows only a slight elevation from the 49% historic reading in AIG. Buying in May puts at strikes of 45 and 50 implies breaks below the 52-week low of $49.41 into the spring, with fresh long positions in the August 50 strike extending the bearish view. Volume on these August 50 puts totalled 4 times the open interest at this strike.

(XLF) – Financial Select Sector SPDR – Residual bearishness from yesterday’s slew of bank downgrades and rumors during the European session of banks looking to the ECB emergency liquidity rattled the financial services ETF, which is down 3% to $27.90 this morning. With more than 235,000 options trading, the fact that more than twice as many puts are trading as calls provides an apt gauge of the defensive sentiment in the sector. Put-spreaders appear in force in the February contract, with traders selling puts at the 26 strike to fund the purchase of at-the-money puts at the 28 strike. Contrarian wagers were in evidence in the March contract, where calls at the 30 strike were bought on volume of more than 31,000 lots – the 30-cent premium reflecting a slightly better than 1-in-4 chance that the XLF can pull above $30 by March expiration.

(SIRF) – SiRF Technology Holdings – Shares in this maker of semiconductors for global positioning systems lost more than 51% of their value in early trading. The company’s sales guidance for 2008 fell well short of street estimates, succumbing to pressure from competition from the likes of Qualcomm and Texas Instruments and a high likelihood of even more contenders entering the GPS chip market this year. With shares at $7.85, a new 52-week low, options are trading at 2.7 times the normal level, with fresh shorting in March 10 calls but fresh buying at the same strike in the June calls. Today’s precipitous drop for SiRF shellacks the bearish mood on a share that has lost more than 68% of its capitalization so far this year.

(XLP) – Consumer Staples SPDR - Shares in the consumer staples ETF, whose components include the likes of Procter & Gamble, Altria, Wal-Mart and Coca-Cola, notched 1.2% lower to $26.97 this morning. The increase in option trading volume to 4 times the normal level looks like the result of the closing sale of a position in February 29 puts, with the trader taking the $0.95 profit from positions opened for $0.85 on January 11 and reinvesting the proceeds at a lower strike in the March 27 puts, implying a decline from current levels.

(HMY) – Shares in the world’s fifth-largest gold producer Harmony Gold declined 2% to $9.58, this despite fresh projections from the company’s new CEO of some 2.50 million ounches in yearly output by 2010. The company is due to report earnings next Thursday. Harmony options are currently attracting 3 times the normal level of volume, but the positioning of today’s volume doesn’t suggest earnings plays in force. Instead, we’re seeing fresh positioning in out-of-the-money May 15 calls, which were bought on volume nearly 3 and a half times the existing open interest. The 25 cent premium on this position reflects a market pricing in just a 12% probability that its shares can test the $15 by May – such a move would place Harmony within $1.50 of its standing 52-week high.

(MOT) –Motorola - Options in the cell phone maker have attracted a good deal of directional/speculative interest in recent sessions on reports that the company may be looking to offload its mobile handset devices division. Earlier today the Financial Times quoted sources saying that the company is likelier to pursue a joint venture or partnership rather than divest the unit completely. With shares down 3% at $11.83, more than 57,000 options traded in the first market hours, with what looks like a boldly bullish directional buy in the January ’09 22.50 calls. These calls, which were bought for around 23 cents apiece, imply a break of $2.80 above the standing 52-week high of $19.93 set nearly a year ago to the day.

(GOOG) – Google – The gargantuan search engine’s efforts to pit its opposition to a Microsoft takeover of Yahoo as a David versus Goliath trope doesn’t seem to have cooled investors too much. Shares in the company are up 1.4% to $502.89, with more than 62,500 options trading with a slight volume bias to calls. Fresh buying and selling was observed in February 500 and 510 calls, with puts at the 490 strike trading mostly to sellers. A look at open interest shows about twice as many call positions open as puts.

Source: Tuesday's Options Report: WHR, KBH, XHB, AIG, XLF, SIRF, XLP, HMY, MOT, GOOG