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December 27, 2012  Thu 9:27 AM CT

ASTX: SEE CHART GET CHAIN FIND STRATEGIES
Astex Pharmaceuticals is surging to its highest level in 10 weeks today, but option traders are taking a cautious stand on the stock.

optionMONSTER's Depth Charge system detected the purchase of 5,288 February 3 calls this morning, led by a block of 4,956 that went for $0.26. This is a new position, as there was no open interest before trading began today.

ASTX is up 5.43 percent to $2.91 this morning, breaking above its 100-day moving average to its highest level since October. The stock fell sharply after hitting a 52-week high of $3.49 in mid-September but rebounded from support around $2.20 in mid-November.

The puts bought today will track the stock price closely because they are already in the money. They could be a hedge on a long position or a straightforward bet that the stock will fall roughly 5.5 percent by expiration in mid-February. (See our Education section)

The trade has made up almost all the volume of 5,642 contracts in ASTX so far today, which is 30 times its daily average for the last month. Only 336 calls have changed hands at all strikes.
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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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