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November 30, 2012  Fri 2:45 AM CT

NVS: SEE CHART GET CHAIN FIND STRATEGIES
Novartis has been rallying since regulators approved the company's new flu vaccine earlier this month, and traders are looking for more gains in coming weeks.

optionMONSTER's Heat Seeker tracking system detected the purchase of 1,000 December 62.50 calls at the same second yesterday for $0.50. Open interest at the start of the session was 413 contracts, so this is a new position.

NVS rose 1.09 percent to close at $61.95, a day after breaking above its 50-day moving average. The pharmaceuticals company fell to a support level around $59 about two weeks ago but began a sharp reversal on Nov. 20 when the Food and Drug Administration approved the company's Flucelvax flu vaccine.

The company will present at two industry events next month, the Berenberg European Conference in London on Dec. 6 and the Nomura European Conference in Tokyo on Dec. 11. Novartis is also scheduled to report results for the fourth quarter and all of 2012 on Jan. 23.

Yesterday's call buyer has locked in a purchase price for the stock and is looking for NVS to rise roughly 18 percent by expiration on Dec. 21. If the shares fail to rally by then, however, those contracts will expire worthless. (See our Education section)

The trade pushed total option volume in the name to 8.5 times its daily average. Calls outnumbered puts by more than 3 to 1, reflecting the session's bullish sentiment.
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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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