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July 11, 2013  Thu 2:45 AM CT

LINE: SEE CHART GET CHAIN FIND STRATEGIES
A bullish call spread led the option trade in Linn Energy yesterday as shares continued to recover lost ground.

A trader bought 2,200 January 25 calls for the ask price of $4.30 and, at the same time, sold 4,400 January 30 calls for the bid price of $2, according to optionMONSTER's Heat Seeker tracking system.  

This strategy, known as a ratio spread because twice as many contracts were sold than bought, costs the trader just $0.30, which is the amount at risk if LINE is anywhere below $25 at expiration in mid-January. The maximum gain would come if shares are around $30 at that time, but above that level the trader would be effectively short shares. (See our Education section)

LINE gained 2.5 percent yesterday to close at $26.64. Shares tumbled last week after it was announced that the company was being investigated for possible violations of securities laws. The stock hit a low of $20.25 on Friday after trading above $33 at the start of that week.
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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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