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June 13, 2013  Thu 5:16 AM CT

SCSS: SEE CHART GET CHAIN FIND STRATEGIES
The bulls are betting that Select Comfort is getting its mojo back.

The mattress maker was a monster stock between 2009 and 2012, rocketing from under $1 to more than $35. It then dropped for the next year but has been working its way higher since April.

Upside option activity in the name crossed our screens yesterday. optionMONSTER's Heat Seeker program detected the purchase of some 3,700 September 25 calls, most of which priced for $1.60. Volume was almost 19 times higher than the strike's previous open interest, indicating that new positions were initiated.

These long calls lock in the price where the stock can be bought, which gives them potentially significant leverage in a rally. For example, SCSS rose after the options hit yesterday, driving the calls up to $2.15 at one point while the stock ended the session up 4.69 percent to $23.46. (See our Education section)

Total option volume was 11 times greater than average in the name, with calls outnumbering puts by a bullish 29-to-1 ratio.

(A version of this post appeared on InsideOptions Pro yesterday.)
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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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