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September 27, 2013  Fri 3:16 AM CT

ITMN: SEE CHART GET CHAIN FIND STRATEGIES
A trader is betting that biotechnology company InterMune will spike higher in the next seven months.

optionMONSTER's Heat Seeker system detected the purchase of 2,000 April 15 calls in one print that went for $3.50. Open interest in the strike was just 111 contracts before the trade appeared, showing that this is clearly a new position.

These long calls lock in the price where the stock can be purchased through mid-April 2014 no matter how far it might rise. They could be sold earlier at a profit if premiums gain with a rally before then, but the contracts could also expire worthless if shares don't climb far enough. (See our Education section)

ITMN gained 1.84 percent yesterday to close at $14.97. The drug developer spiked higher after reporting second-quarter results on July 24 but has been trapped between $14 and $15.50 since early August.

Total option volume in ITMN yesterday was 5.5 times its daily average for the last month. Overall calls elipsed puts by almost 2 to 1.
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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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