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September 20, 2013  Fri 2:45 AM CT

FDX: SEE CHART GET CHAIN FIND STRATEGIES
FedEx hit six-year highs yesterday after delivering strong quarterly results a day earlier, and a complex combination trade is looking for even more gains.

optionMONSTER systems show that 3,750 contracts traded in the January 120 and 135 calls and January 105 puts. The 120 calls were bought for the ask price of $4.30, while the 135 calls were sold for bid price of $0.77 and 105 puts were sold for their bid price of $2.02. The volume at all three strikes was above open interest, so this is a new position.

This bullish strategy uses the sale of the higher-strike calls and the puts to offset the cost of the long calls. The trader limits total potential gains and, because of the short puts, takes the risk of having to buy shares if they are below $105. (See our Education section)

FDX was up 0.5 percent to close at $116.83 yesterday after peaking at $117.38 intraday, both its highest levels since 2007. The global shipping giant has been trending up from support at $90 in the last five months.

More than 25,000 FDX options traded yesterday, 3 times its daily average. 
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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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