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July 30, 2013  Tue 10:16 AM CT

MTOR: SEE CHART GET CHAIN FIND STRATEGIES
Traders want protection in case Meritor issues a weak earnings report tomorrow morning.

optionMONSTER's Depth Charge monitoring system detected the purchase of about 3,600 August 6 puts for $0.10 and $0.15. Volume was more than triple open interest at the strike.

Puts lock in where shares can be sold in the auto-parts maker, giving them an inverse correlation to the stock price and letting traders make money from a drop. The contracts can be used to protect a long position in the name or to speculate to the downside. (See our Education section)

MTOR is off 0.41 percent to $7.37 but is up 27 percent in the last three months. Most of that move followed a strong earnings report on April 30.

Several companies in the industry have beaten expectations recently as automobile demand improves. Goodyear Tire & Rubber, for instance, rallied more than 10 percent earlier today after beating estimates.

Total option volume is more than twice the daily average in MTOR, according to the Depth Charge. Puts outnumber calls by more than 800 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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