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August 29, 2013  Thu 4:45 AM CT

TOT: SEE CHART GET CHAIN FIND STRATEGIES
Energy names have seen steady option activity in recent weeks, and yesterday the bulls turned their attention to French oil-and-gas producer Total.

optionMONSTER's Heat Seeker system detected heavy call buying in the November 60 strike, where 3,126 contracts traded for $0.50 to $0.70. The voume was well above the previous open interest of 646 calls, indicating that new positions were established.

These long calls lock in the price where traders can buy the stock through mid-November no matter how far it might rise. They could be sold earlier if premiums climb with a rally before then, but the contracts could also expire worthless if shares remain below $60. (See our Education section)

TOT rose 2.25 percent yesterday to close at $56.91. Shares seemed to stall after running higher ahead of the Paris-based company's earnings report on July 26, but they resumed their upward trend in the last two weeks despite the broader market's recent downturn.

Overall option volume in the name topped 6,300 contracts, 5 times its daily average for the last month. Calls outnumbered puts by almost 4 to 1, a reflection of the session's bullish sentiment.
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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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