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April 27, 2012  Fri 10:15 AM CT

EXCO: SEE CHART GET CHAIN FIND STRATEGIES
EXCO Resources is trying to lift itself, and one investor expects a sustained rally.

optionMONSTER's Heat Seeker tracking system detected the purchase of 15,000 September 8 calls for $0.60 and the sale of equal number of September 10 calls for $0.225. Volume was more than triple open interest at both strikes.

The trade cost $0.375 and will earn a maximum profit of 433 percent if the shale-energy producer closes at or above $10 on expiration. It's known as a bullish call spread because it leverages a move between two prices. See our Education Section for more.

XCO is down fractionally to $6.82 today and has lost two-thirds of its value in the last year. In recent sessions, the stock has been trying to hold support at its lowest price since late 2008.

Buyers stepped into the May 6 calls on April 19 and doubled their money in the following week.

Overall option volume in the name is 8 times greater than average so far today, according to Heat Seeker. Calls outnumber puts by 25 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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