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March 15, 2013  Fri 9:20 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
A huge call spread is looking for the SPDR S&P 500 Fund to break to new highs in coming weeks.

It is rare to find unusual option trades in the SPY, as the open interest is typically so large that it makes such identification difficult. But this morning a huge call spread stands out in the first April Weekly expiration.

optionMONSTER's Heat Seeker system shows that a trader bought 40,000 of the 158 calls for the ask price of $0.47 and, at the same time, sold the same number of the 159 calls for the bid price of $0.24. The volume was more than the previous open interest at each strike.

This vertical spread is looking for the SPY to be above $159 in the next three weeks. The trader spent $0.23 for the possibility to make $0.77--a $3.08 million payout. This could also be an example of using a call spread to replace stock exposure, as cited in this week's Options Academy newsletter. (See our Education section)

The SPY is down 0.4 percent to $155.40 this morning, coming off yesterday's high of $156.80. The exchange-traded fund is within its range of the last three days.  
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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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