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October 15, 2012  Mon 10:48 AM CT

ANN: SEE CHART GET CHAIN FIND STRATEGIES
Ann has been pulling back, and the bulls are jumping in.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,000 December 36 calls for $2.20, matched against the sale of an equal number of December 41 calls for $0.45 and $0.50. Volume was more than 40 times open interest at both strikes.

The trade cost $1.70 and has the potential to earn a profit of 194 percent if the stock closes at or above $41 on expiration. It's known as a bullish call spread because it leverages a move between two prices. (See our Education section)

ANN is off 0.22 percent to $36.02 today. The New York-based retailer is up 36 percent in the last three months after results beat expectations on Aug. 17. Shares have been consolidating in a range since. They bounced today after testing their 50-day moving average, which could be leading some chart watchers to expect the uptrend to continue.

Overall option volume is 6 times greater than average in the name so far in the session, with calls outnumbering puts by 71 to 1.
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Education & Strategy

Sweet Spot Exceptions

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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