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August 1, 2012  Wed 1:47 AM CT

SBAC: SEE CHART GET CHAIN FIND STRATEGIES
SBA Communications hit a new all-time high this morning before turning negative, and a volatility trader is combining stock and options to open a large position.

SBAC hit $60.25 yesterday morning but ended up closing at $59.06, down 0.59 percent on the session. The wireless-tower company has been in a bull run for years, gaining 500 percent from the last 2008 lows around $10. Shares have essentially doubled in the last 10 months.

A trader sold 10,000 March 65 calls for $1.80, compared with a daily average of just 600 contracts and no previous open interest at the strike, according to optionMONSTER's systems. Seconds later, a block of 260,000 SBAC shares was bought for $59.0962, accounting for about half of its total stock volume on the day.

The stock and options appear to be tied together in a short-volatility play. The strategy can profit if shares are around $65 at expiration and/or if the actual volatility is lower than that implied by the option prices. The implied volatility of those calls is 21.7 percent, while the 30-day historical volatility is 16 percent. (See our Education section)
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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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