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December 30, 2011  Fri 11:40 AM CT

ACOM: SEE CHART GET CHAIN FIND STRATEGIES
Shares of Ancestry.com have been hovering around $23 for months, but one trader is looking for a break lower.

ACOM is off fractionally on the day at $23.03. The genealogy research service has been vacillating around this price since hitting an intraday low of $20.67 in late September. The volatility has fallen dramatically, with the 30-day historical reading at its lowest level since July and the average implied volatility at its lowest since January.

More than 5,000 ACOM options have traded so far today, dwarfing its daily average of just 190. The volume is dominated by a single put spread.

optionMONSTER's systems show that a trader bought 2,500 May 25 puts for $4.66 and sold the same number of May 17.50 puts for $1.01 with wide bid/ask spreads at both strikes. The previous open interest was less than 50 at both strikes, so this was a new opening put spread.

The put spread is looking for ACOM to trade down to $17.50 or below in the coming months, a level not seen since June 2010. Given that the higher strike puts are in the money, this is very likely an outright bearish play as opposed to a hedge. (See our Education section)
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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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