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August 28, 2012  Tue 11:28 AM CT

APC: SEE CHART GET CHAIN FIND STRATEGIES

Volatility for Anadarko Petroleum has been dropping, and today’s big options trade looks for that trend to continue.

APC rose 0.58 percent to $69.17 in early afternoon trading. It has been in an increasingly tight range over the last month and is in the middle of the 52-eek high and low. The 30-ay historical volatility is down to 27 percent from near 50 percent six weeks ago. Ten-day price swings have abated to a 20 percent annualized rate. 

Dominating the options volume in the name is one print in the February 80 calls. A trader sold 12,000 of those calls for the bid price of $2.56. This was done against open interest of 237, so it was a new position.

Because options derive some of their value from volatility, selling calls or puts is a bet that it will drop or remain unchanged. Today's trade could be done naked, with an initial bearish bias, or may have been paired against long shares as a covered-call position. That would take a maximum profit if APC is at or above $80 at that expiration. See our Education Section for more.

The call sale accounted for almost two-thirds of the volume in today's session.

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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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