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July 25, 2013  Thu 4:14 AM CT

ACAS: SEE CHART GET CHAIN FIND STRATEGIES
American Capital is attracting bullish option activity ahead of its earnings report next week.

optionMONSTER's Heat Seeker system detected heavy buying in the August 12 calls yesterday as prices rose steadily from $1.60 to $1.82 throughout the afternoon. More than 7,500 of the contracts traded in volume far above the strike's previous open interest of just 573, clearly indicating that these are new positions.

These long calls are looking for a pop in the stock before they expire three weeks from tomorrow. The options will track the share price closely because they are in the money and will lose value if ACAS doesn't rise soon. (See our Education section)

ACAS fell 1.58 percent yesterday to close at $13.68, just below its 100-day moving average. The stock had been declining since early May but bounced sharply at the $12 in late June and has been trending higher since.

The private-equity and venture-capital firm is scheduled to report second-quarter results on Tuesday after the close.

Total option volume in the name was just shy of 10,500 yesterday, more than 10 times its daily average for the last month. Overall calls outpaced puts by more than 5 to 1.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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