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November 26, 2013  Tue 3:47 AM CT

DECK: SEE CHART GET CHAIN FIND STRATEGIES
A big call spread topped yesterday's option activity in Deckers Outdoor as shares hit five-year highs.

optionMONSTER systems show that a trader bought 3,500 December 82.50 calls for $2.25, above the ask price, while selling 7,000 December 85 calls for $1.15. Previous open interest in the strikes were 33 and 66 contracts respectively, indicating that new positions were established.

This ratio spread takes in a credit of $0.05, which will be the profit if DECK remains below $82.50 through expiration in mid-December. The maximum gain would be realized with the stock right at $85 at that time. Above that level, the trader is effectively short shares. (See our Education section)

DECK rose 2.15 percent yesterday to close at $81.64 after hitting an intraday high of $83.04, both their highest levels since 2008. The footwear maker was below $60 a month ago. 
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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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