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September 20, 2013  Fri 3:16 AM CT

ADBE: SEE CHART GET CHAIN FIND STRATEGIES
Adobe Systems attracted a highly bullish trade late yesterday as shares pulled back from their all-time highs.

A trader bought 3,768 January 55 calls for the ask price of $1.54 and sold the same number of January 48 puts for the bid price of $1.19, according to optionMONSTER's real-time tracking systems. Both transactions took place at the same second less than 15 minutes before the closing bell, with volume well above the previous open interest in each strike.

This combination trade is strongly bullish because the calls will increase in value while the puts dwindle if the ADBE rallies. But the calls will expire worthless if shares remain below $55 through mid-January, and the trader will face the obligation to buy the stock if it falls under $48. (See our Education section)

ADBE fell 1.35 percent yesterday to $51.87. But the software company gapped to a lifetime high of $52.67 from the $48 level in the previous session after its quarterly report showed success in the company's transition to subscription-based services.

Total option volume in Adobe yesterday topped 27,500 contracts, almost 5 times its daily average for the last month. Overall calls eclipsed puts by about 2.5 to 1.
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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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