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March 21, 2013  Thu 10:13 AM CT

ARMH: SEE CHART GET CHAIN FIND STRATEGIES
ARM Holdings is falling sharply this morning, and one option trader is looking for more volatility in the semiconductor name.

optionMONSTER systems show that volume of 4,500 contracts is already triple its full-session average. A trader bought 3,750 April 38 puts for the ask price of $0.65 in volume that was 10 times the previous open interest, so this is a clearly a new position.

A minute earlier, the biggest block of ARMH stock traded as 100,000 shares were bought for $40.10. The combination of stock and options creates an overall position that is delta-neutral and long volatility, meaning that the trader is anticipating a big move up or down in the stock. (See our Education section)

ARMH is down 2.86 percent to $40.02 this morning. That is the U.K.-based chip maker's lowest level since the middle of January and represents support. Shares were hit a 52-week high above $40 at the start of the month. 
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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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