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October 7, 2013  Mon 12:21 PM CT

IP: SEE CHART GET CHAIN FIND STRATEGIES
One investor wants to take a free ride on International Paper.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 15,000 January 45 calls for $1.83 and the sale of 60,000 January 50 calls for $0.51. Volume surpassed open interest at both strikes, indicating that new positions were initiated.

The trader collected a credit of $315,000 and now stands to bring in an additional $7.5 million if the packaging stock closes at $5 on expiration. Above that level he or she is effectively short 4.5 million shares, so the trader almost certainly own the stock.

It looks as if the trader bought IP when it shot over $50 in late July after a strong earnings report. It was the highest price in more than 13 years, leaving them trapped when sellers drove the stock back below that level.

Today's investor is using the ratio spread to repair that trade. This way he or she stands to leverage a move back to $50 and will exit the position if it goes to resistance. (See our Education section for more on how to turn losing trades into winners with options.)

Alternately, the investor might have bought shares at lower prices and simply wishes to enhance a run back toward the top.

IP is down 0.45 percent to $43.51 in afternoon trading. It flirted with $50 twice in September but is now down 9 percent in the last month. Earnings come out on Oct. 24.

The ratio spread is the single largest transaction to appear in the market today. It pushed total option volume in IP to 12 times greater than average. The Heat Seeker shows calls outnumbering puts by a bullish 100-to-1 ratio.
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