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October 28, 2013  Mon 4:14 AM CT

CSTE: SEE CHART GET CHAIN FIND STRATEGIES
Caesarstone is attracting upside option activity ahead of its earnings report next week.

More than 2,900 January 45 calls were bought for $2.15 to $4.20 on Friday afternoon, according to optionMONSTER's Heat Seeker tracking system. These are clearly new positions, as open interest in the strike was just 251 contracts before the trades appeared.

These long calls lock in the price where the stock can be purchased through mid-January no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $45. (See our Education section)

CSTE surged 7.46 percent to $42.64 on Friday, closing above its 50-day moving average for the first time since Oct. 8. The company, which makes quartz countertops, is scheduled to release third-quarter results on Nov. 6 before the market opens.

Total option volume in the name exceeded 4,100 contracts on Friday, 16 times its daily average for the last month. Overall calls outpaced puts by 5.5 to 1, a reflection of the session's bullish sentiment.
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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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