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October 10, 2012  Wed 4:33 AM CT

GTI: SEE CHART GET CHAIN FIND STRATEGIES
Shares of GrafTech have been surging recently, and one trader is looking for another pop ahead of the company's next earnings report.

optionMONSTER's Heat Seeker tracking system detected October 10 call buying that accelerated yesterday afternoon, led by a 2,000 print that went for $0.50. The volume was more than 10 times the open interest in the strike at the start of the session, clearly indicating a new position.

GTI rose 5.27 percent yesterday to close at $10.18, continuing to run higher since bouncing off support just below $9 last Wednesday. The manufacturer of graphite products, which saw bullish activity in the November 10 calls on Sept. 24, is scheduled to report third-quarter results on Oct. 25.

Yesterday's long calls are looking for the stock to close above $10.50 on expiration on Oct. 19, three trading days before GrafTech's earnings release. The premiums on those options could rise if the shares rally before then, allowing the trader to sell the calls at a profit earlier. (See our Education section)

The trades pushed total option volume in the name to 3,072 contracts, 7 times more than its daily average. Calls outnumbered puts by 13 to 1, a reflection of the session's bullish sentiment.
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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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