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November 7, 2013  Thu 3:47 AM CT

TRNX: SEE CHART GET CHAIN FIND STRATEGIES
Tornier plummeted after its quarterly report yesterday, but one trader is looking for a rebound in shares of the Dutch medical-device maker by next May.

optionMONSTER's tracking systems detected the purchase of 2,000 May 17.50 calls and the sale of 2,000 May 15 puts yesterday. There was no open interest in either strike at the beginning of the session, so this is a new combination trade.

The trade is highly bullish because the long calls will rise in value with a rally while the premiums of the puts fall. But the opposite will occur if TRNX drops, and the trader will be on the hook to buy shares if they drop below $15. (See our Education section)

TRNX plunged 25.85 percent yesterday to close at $15.69, gapping down from above $21 at the open. The Amsterdam-based company missed third-quarter earnings estimates and issued guidance that came in well below analysts' estimates.

Yesterday's combination play pushed total option volume in the name past 7,000 contracts, almost 2.5 timest its daily average for the last month. 
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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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