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January 18, 2013  Fri 4:14 AM CT

TSO: SEE CHART GET CHAIN FIND STRATEGIES
Long-term bullish traders are looking for Tesoro to reach levels not seen in five years.

optionMONSTER's Heat Seeker system shows that 6,000 January 2014 50 calls were purchased for an average price of $3.85 yesterday afternoon. The volume dwarfed the strike's open interest of just 164 contracts at the start of the session, so this is clearly fresh buying.

These long calls, which lock in the price where stock can be bought, are betting that TSO will be well above the $50 strike price by the time they expire a year from today. Tesoro last traded above $50 in December 2007. (See our Education section)

TSO, which will announce fourth-quarter earnings before the market opens on Feb. 7, was down fractionally at $43.68 yesterday. The oil-refining company fell sharply after starting 2013 by hitting a 52-week high, but the stock has been climbing from support at the $40 level last week.

Yesterday's call buying drove total option volume in the name to nearly 12,000 contracts, almost triple its daily average of 4,086 in the last month.
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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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