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May 29, 2013  Wed 3:16 AM CT

NEON: SEE CHART GET CHAIN FIND STRATEGIES
Bullish traders are looking for Neonode to break by early next year.

optionMONSTER's Heat Seeker system shows that 1,630 January 8 calls were purchased yesterday, mostly for $0.50. This is clearly fresh buying, as open interest in the strike was just 4 contracts before the session began.

These long calls, which lock in the price where traders can buy shares no matter how far they might rise, are betting that NEON will rally above $8.50 by mid-January. But if shares remain below the $8 strike price, those options will expire worthless. (See our Education section)

NEON rose 3.85 percent yesterday to close at $5.40, just below its 100-day moving average. The company, which manufactures infrared touchscreens, has been drifting lower since hitting overhead resistance above $6 in the last month.

Overall option volume in the name was nearly 16 times its daily average for the last month. Calls outnumbered puts by a bullish ratio of more than 71.5 to 1.

The company is scheduled to present at the 10th Annual Craig-Hallum Institutional Investor Conference tomorrow and at Cowen's 41st Annual Technology, Media & Telecom Conference on Thursday.

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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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