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August 14, 2013  Wed 3:16 AM CT

RAD: SEE CHART GET CHAIN FIND STRATEGIES
Rite Aid has been working its way higher since the end of 2012, and one trader is looking for the stock to reach a level it has not seen in more than five years.

optionMONSTER's Heat Seeker system detected the purchase of 2,000 September 4 calls in one print for $0.10 yesterday. The volume was well above the strike's open interest of 260 contracts before the trade appeared, clearly showing that this is a new position.

These long calls lock in the price where traders can buy the stock no matter how far it might rise. But the contracts will expire worthless if RAD remains below $4 through mid-September. (See our Education section)

RAD rose 3.96 percent yesterday to close at $3.41. The stock has been trending higher since briefly dipping below $1 late last year, but it has not traded above $4 since December 2007.

Earlier this month, the drugstore chain reported that revenue from July same-store sales rose 1.3 percent year over year. The company is scheduled to report August sales on Sept. 5, followed by its next quarterly results on Sept. 19.

Total option volume in RAD exceeded 11,800 contracts yesterday, more than triple its daily average for the last month. Overall calls outnumbered puts by a bullish 32-to-1 ratio.
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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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