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May 2, 2014  Fri 12:20 PM CT

EQT: SEE CHART GET CHAIN FIND STRATEGIES
EQT has been rallying on the heels of a strong quarterly report, and bullish option activity continues to build in the name.

optionMONSTER's Heat Seeker monitoring program detected the purchase of more than 2,600 June 105 calls, most of which priced for $7.40 to $8.60. Volume was more than 4 times the previous open interest in the strike, indicating that new money was put to work.

Long calls lock in the price where a stock can be purchased, providing exposure to a rally with limited risk. Today's contracts are also in the money, so they will closely track movements in the underlying share price. It's a cheap way to get leverage on a stock already in the triple digits. (See our Education section)

EQT is up 0.78 percent to $110.10 in afternoon trading and has risen 23 percent this year as investors have flocked to companies in the domestic-energy space. The natural-gas producer has also been recommended on our proprietary Market Action webinar several times.

Quarterly results on April 24 also crushed expectations on the top and bottom lines. Shares gapped higher on the news but pulled back, and now the bulls are looking for the uptrend to continue.

Overall option volume is already 6 times higher than its daily average so far in the session, with calls outnumbering puts by more than 7 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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