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October 3, 2013  Thu 4:45 AM CT

TASR: SEE CHART GET CHAIN FIND STRATEGIES
Taser's stock price has nearly doubled in less than two months, and option traders are counting on the momentum to continue.

optionMONSTER's Heat Seeker system found heavy buying yesterday in the October 16 calls, which saw about 5,700 contracts trade for $0.70 to $1.52. The volume was well above the previous open interest of 1,695 at that strike, indicating that new positions were established.

These long calls lock in the price where the stock can be purchased through mid-October no matter how far it might rise. But the contracts, which will track the share price closely because they are in the money, will quickly lose value if TASR doesn't rise soon. (See our Education section)

TASR gained 4.45 percent yesterday to $16.65, its highest close since October 2007. The stock had been trading sideways since last November but jumped from the $8.50 level in mid-August on news that law-enforcement agencies were increasing purchases of the company's wearable video cameras. The company, which is best known for its electrical weapons, is scheduled to announce third-quarter results on Oct. 30.

Total option volume in the name was topped 17,000 contracts yesterday, more than 5.5 times its daily average for the last month. Overall calls outnumbered puts by a bullish 9-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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