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December 11, 2012  Tue 4:14 AM CT

EMN: SEE CHART GET CHAIN FIND STRATEGIES
One investor has cleaned up in Eastman Chemical but isn't done yet.

On Nov. 28, optionMONSTER's Heat Seeker tracking system detected the purchase of about 7,000 March 62.50 calls and the sale of an equal number of March 52.50 puts. The investor paid $0.40 to open the position, which was very similar to owning shares in the Tennessee-based chemicals company.

The stock then proceeded to rally and that trade generated massive leverage, appreciating 500 percent through yesterday. The investor adjusted the strategy to lock in gains, while remaining at the table in case EMN continues to climb.

This time the trader sold the March 62.50 calls for $3.50 and bought the March 65s for $2.40, rolling the position to the higher strike. The investor recovered $1.10 of capital, almost 3 times the initial outlay, and now stands to make even more money if the shares keep rising. The trader remains short the March 52.50 puts. (See our Education section)

EMN rose 1.39 percent to $62.71 yesterday after hitting an all-time high of $62.94 earlier in the session. The company increased its quarterly dividend by 15 percent to $0.30 last week and is scheduled to hold its annual conference for investors tomorrow in New York at 1 p.m. ET.

Total option volume was almost 6 times greater than average in the session, according to the Heat Seeker.
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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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