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October 18, 2013  Fri 3:47 AM CT

SDRL: SEE CHART GET CHAIN FIND STRATEGIES
Someone really hates Seadrill.

optionMONSTER's Depth Charge monitoring system detected the purchase of about 5,000 November 47 puts for about $1.725 and the sale of an equal number of October 47 puts for $1. Volume was below open interest in the nearer-dated contracts, which indicates that an existing position was closed and rolled forward in time.

Making the adjustment cost $0.725 and gives the trader an additional month of downside exposure to the oil-services stock, which has been drifting lower since hitting an all-time high above $48 a month ago.The choice of in-the-money contracts is noteworthy because they're highly leveraged to a drop and would be used only by a speculative bear betting on a decline, not an investor hedging a long position. (See our Education section)

SDRL closed unchanged at $45.98 yesterday. It rallied more than 50 percent between April and mid-September but has been making lower lows and lower highs since. The shares now appear to be hitting resistance at the same $46 level that was recently support, which could make some chart watchers expect a more aggressive selloff.

Total option volume was quadruple the daily average in the session, according to the Depth Charge. Puts outnumbered calls by almost 10 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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