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February 28, 2013  Thu 1:47 AM CT

ENDP: SEE CHART GET CHAIN FIND STRATEGIES
Endo Health Solutions reports earnings after the bell today, and the bulls are stepping in.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 10,000 April 30 calls for $1.78 and the sale of a matching number of April 35 calls for $0.33. Volume exceeded the previous open interest in each strike, indicating that these are new positions.

The trade resulted in a cost of $1.45 and will earn a maximum profit of 245 percent if the drug maker closes at or above $35 on expiration. It's known as a bullish call spread because it leverages a move between two prices, in this case $30 and $35. (See our Education section)

ENDP rose 3.29 percent to $30.80 yesterday. It is down 19 percent in the last year but has been working its way higher since early January.

Total option volume in the name was 6 times its daily average in the session, according to the Heat Seeker. Calls outnumbered puts by more than 23 to 1.
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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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