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July 27, 2012  Fri 2:16 AM CT

AEIS: SEE CHART GET CHAIN FIND STRATEGIES
Advanced Energy Industries has been dropping, and one bear isn't letting go.

optionMONSTER's Depth Charge monitoring program detected the purchase of 2,000 August 12.50 puts for $1.60 and the sale of an equal number of August 15 puts for $3.70. Volume matched open interest in the 15s, indicating that an existing position was rolled from one strike to the other.

The trader is using in-the-money puts to leverage a decline in the company, whose technology is used for solar panels and electronics. He or she apparently made money on the initial bet and adjusted the strategy to recover $2.10 of cash. The trader also increased leverage because much less capital is now at risk. (See our Education section)

AEIS rose 5.08 percent to $11.58 yesterday. The stock rallied 75 percent between October and early this month but stalled at an old support level from last year and has been falling since.

Overall option volume was 16 times greater than average yesterday, according to the Depth Charge. Puts accounted for almost 80 percent of the total.
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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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