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November 19, 2013  Tue 12:18 PM CT

NADQ: SEE CHART GET CHAIN FIND STRATEGIES
The bulls think it will be a happy New Year for Nasdaq OMX Group.

optionMONSTER's Heat Seeker monitoring program detected call buying in the financial exchange early today, and the shares have been powering higher since. The activity started just seconds after the opening bell, focusing on the January 37s and the January 40s. Some 1,500 of the 37s traded, mostly for $1.48 to $1.95, along with 1,000 of the 40s for $0.23 to $0.64. Volume was more than 10 times open interest at both strikes, indicating that new money was put to work.

These long calls lock in the price where NDAQ can be purchased, letting investors cheaply position for a rally and generate significant leverage if the stock continues to climb. In the case of today's activity, they can now rest easy knowing the stock won't run away from them. (See our Education section for more on how to manage risk--both upside and downside.)

NDAQ is up 1.97 percent to $38.34 and is back to an old peak from September 2008, shortly before the subprime-mortgage crisis sent equities crashing. The company's last earnings report beat expectations, matching strong results for other financial exchanges. Our proprietary researchLAB scanner shows the industry quietly pulling ahead of the broader market in the last year.

Despite operating a major option exchange, NDAQ usually trades a paltry 315 contracts per session, but volume is 9 times that amount today. Calls outnumber puts by more than 100 to 1.
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Education & Strategy

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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