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November 14, 2012  Wed 2:45 AM CT

APD: SEE CHART GET CHAIN FIND STRATEGIES
The bears are targeting Air Products & Chemicals, which has been making lower highs more than a year.

optionMONSTER's Depth Charge monitoring program detected the purchase of 2,400 November 80 puts for $0.40 and $0.45 against open interest of just 505 contracts. The trades dominated activity in the company, which provides pressurized gas to a wide array of industrial clients.

Those puts lock in the price where investors can sell shares, so they will move inversely to the stock. While similar to short selling, the strategy has less risk because the options can lose only the initial investment in the event of a rally. (See our Education section for more on how trading options can be safer than trading stocks.)

APD rose 0.74 percent to $80.54 yesterday but has been drifting lower since July 2011. It gapped down on Oct. 19 after earnings missed expectations, then partly rebounded. Yesterday's traders apparently think that downward momentum will resume.

More than 3,000 contracts traded in the session, triple normal volume. Puts outnumbered calls by 18 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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