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September 30, 2013  Mon 11:07 AM CT

KONG: SEE CHART GET CHAIN FIND STRATEGIES
KongZhong is up sharply in spite of today's weak tape, and one trader apparently believes that any downside will be limited in the Chinese digital-entertainment company.

optionMONSTER systems show that 3,300 November 10 puts have been sold for the bid price of $0.30 on a wide bid/ask spread. The volume was twice the previous open interest, so this is clearly a new position.

The put selling is a bet that KONG will hold above $10 through that November expiration. The trader takes on the risk of having to buy shares if they are below that level. (See our Education section)

KONG is up 5.83 percent to $12.86, making up for losses at the end of last week. Shares hit a high of $14.92 at the start of the month but were down at $10 just two days before that peak.

About 3,600 KONG options have changed hands, compared to the daily average of 726 for the last month.
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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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