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March 1, 2013  Fri 12:21 PM CT

XLNX: SEE CHART GET CHAIN FIND STRATEGIES
Whether it's calls or puts, the option action has been bullish in Xilinx.

Three days ago, our tracking programs detected heaving buying in the March 37 calls for about $0.65 as investors looked for the chip maker to bounce. It was a good call because XLNX pushed higher, and those contracts shot as high as $1.09 yesterday.

Today the activity shifts to the puts, but the sentiment remains upbeat. This time 6,000 April 34 puts crossed our screens at the $0.42 bid price, suggesting that they were sold. Previous open interest was just 109 contracts at the strike, so a new position is being initiated.

The put seller has agreed to buy the stock for $34 should it close below that level on expiration. If it remains over $34, he or she will keep the $0.42 credit and the puts will expire worthless. The strategy reflects confidence that the shares will hold their ground, plus a willingness to buy them in the event of a pullback. (See our Education section)

XLNX fell 1.26 percent to $36.80 in afternoon trading. It's been slowly grinding upward since July, and recently touched its highest price since April 2004. Quarterly results have been showing signs of improvement, as well.

The stock hit resistance around $34 in October and November, and then bounced at that level in late December. It's also roughly the location of its 200-day moving average, which could make some chart watchers confident it will stay above that price area.

Total option volume is almost 5 times greater than average in XLNX so far today, with that put sale dominating the activity.
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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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