selling January $22.50 call: The 72-cent premium is 3.6% of the

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(Please see Corrections & Amplifications item below)

The stock market's volatility gauge grew quieter Thursday, and investors appeared confident it won't spike again over the next several sessions.

The Chicago Board Options Exchange's volatility index, or VIX, rose 0.34, or 1.3%, to 25.73, after touching briefly above 27 in morning trading. This slight gain wasn't nearly as alarming as Wednesday's midsession jump of nearly 17%.

The closely watched VIX is often called stocks' "fear index" because it tracks prices that investors are willing to pay for options on the S&P 500, usually to guard against market declines. Traders turn to the VIX as they judge whether stocks are likely to stage further steep swings.

"What the VIX isn't saying is that another shoe will drop," Interactive Brokers senior market analyst Andrew Wilkinson said.

In that context, one of the day's notable trades was a sale of a sizeable position of call options on the VIX, a move by an investor who likely isn't expecting higher market anxiety.

In particular, the investor appeared to close out tens of thousands of August VIX calls at the 40 level, traders said. The contracts expire next Wednesday.

A VIX at 40 or higher connotes significant market anxiety, and an investor who sells those calls suggests he is no longer readying for the index to surge.

"It would take another 'flash crash' or some other mini-panic to push VIX above 40 by next Wednesday," WhatsTrading.com analyst Frederic Ruffy said.

Despite the less worrisome signals from the index, there was still little sign that stocks were ready to move higher. The broader indexes were lower.

In a market that is drifting lower or is stagnant, one of the simplest strategies for investors who don't see much upside in stocks they own is to sell call options. Selling a call allows investors to collect a premium, often equal to a few percentage points' gain in the stock, while setting an upside target at which to sell.

Goldman Sachs derivatives strategists this week recommended such an "overwrite" strategy for shares in home-improvement twins Lowe's and Home Depot. They did so on the view that mixed housing data and consumers' reluctance to buy big-ticket items are two big and persistent headwinds for the shares this year. Moreover, the options look relatively pricey.

For Lowe's, Goldman recommends that long shareholders consider selling January $22.50 call options. At Thursday prices, investors collect a 72-cent premium and keep the entire amount as long as the stock stays under $22.50 through mid-January. The shares shed seven cents, or 0.4%, to $19.74.

The 72-cent premium is 3.6% of the stock's value at the Thursday close, a cushion for investors who aren't anticipating a big rise. The position still allows shareholders to enjoy another 14% appreciation before selling on top of the premium collected. In exchange, the investor forgoes any increases above $22.50 for the rest of the year, and into early 2011.

Key to this strategy: Be aware of big coming events, be attentive to the stock's dividends and choose the right strike price.

"Make sure you're devoid of big catalysts in between the time you write those calls and the time they expire, or be cognizant of them," MKM Partners Derivatives Strategist Jim Strugger said.

Choosing the correct price is also important for shareholders who want to keep their shares, especially if the stock happens to be one that pays dividends, Mr. Strugger noted.

That's because traders could lose dividends if the options they sold are in the money as the company's ex-dividend date approaches and the shares are "called" away. An outcome still worse awaits investors who are short a call in this situation without stock, since they can actually be on the hook to pay the dividends.

Corrections & Amplifications

The Chicago Board Options Exchange's volatility index, or "fear gauge," closed Wednesday at 25.39, up 13%. A graphic accompanying an earlier version of this article incorrectly said it closed at 22.37, up 1.04%.