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January 4, 2013  Fri 2:45 AM CT

LTM: SEE CHART GET CHAIN FIND STRATEGIES
Life Time Fitness is breaking out of a range that goes back to last spring, but traders are positioning for a pullback before its earnings report next month.

More than 2,100 February 50 puts were bought yesterday, led by a block of 1,532 that went for $1.80, according to optionMONSTER's Depth Charge system. These are new positions, as the strike's open interest was a mere 15 contracts at the beginning of the day.

LTM rose 2.05 percent to finish yesterday's session at $50.84, its highest close since the end of March. Shares of the fitness-center operator have been fluctuating in a wide range between about $40.50 and $50 for the last nine months.

Yesterday's puts, which lock in the price where traders can sell shares, were not tied to any stock trading identified by our systems. They could either be hedging long positions established earlier or making a straight bearish bet that LTM will fall more than 4 percent by expiration on Feb. 15, less than a week before its fourth-quarter results on Feb. 21. (See our Education section)

The trade made up most of the 2,619 options that changed hands in the name, which sees only 43 contracts turn over in a typical session. Puts outnumbered calls by more than 14 to 1, a reflection of the bearish sentiment.
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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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