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May 31, 2013  Fri 9:29 AM CT

UAL: SEE CHART GET CHAIN FIND STRATEGIES
A large trade is positioning for potential drop in shares of United Continental.

optionMONSTER's Depth Charge system detected the purchase of 5,000 July 27 puts in about 2 minutes this morning, led by a print of 4,343 that went for $0.38. This is clearly fresh buying, as open interest in the strike was a mere 3 contracts before the session began.

The puts lock in the price where traders can sell the stock no matter how far it might fall, but they will expire worthless if UAL remains above $27 by expiration in mid-July. These options, which weren't tied to any stock trading identified by our systems today, could have been bought as a protective hedge on a long position established earlier or as a straight bearish bet. (See our Education section)

UAL is down 0.74 percent to $32.40 this morning. The airline carrier has been trending lower since hitting $35.27 on May 20, its highest level since February 2008.

Total option volume in the name is already more than 7,100 contracts, surpassing its full-day average of 6,366 contracts less than an hour into the session. Puts outnumber calls by 31 to 1, a reflection of the bearish sentiment.
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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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