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June 13, 2013  Thu 3:16 AM CT

NSM: SEE CHART GET CHAIN FIND STRATEGIES
One trader apparently suspects that Nationstar Mortgage might be running out of steam.

optionMONSTER's Depth Charge monitoring system detected the purchase of 4,706 January 40 puts for $5.40 and the sale of an equal number of January 45 calls for $4.40. Volume was almost quadruple open interest at both strikes, indicating new positions were implemented.

Owning puts locks in a price where shares can be sold in the mortgage-servicing company, while selling calls forces the trader to unload stock if it climbs to a certain level. Combining the two while owning shares is known as a collar. (See our Education section for other hedging strategies.)
 
Given the $1 debit it cost to open the position, the trader has ensured a minimum exit price of $39 and a maximum of $44 through early next year. He or she may have bought the stock at a lower price and now wants to delay profit-taking for tax purposes.

NSM fell 1.65 percent to $41.10 yesterday but has more than doubled in the last year. It has consistently reported strong earnings as large banks outsource the servicing of home loans.

Total option volume was almost 5 times greater than average in the session, according to the Depth Charge.
 
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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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