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January 11, 2013  Fri 12:21 PM CT

MPEL: SEE CHART GET CHAIN FIND STRATEGIES
Melco Crown has rallied hard, and now the option action is turning bearish.

Our Depth Charge monitoring program detected the purchase of 6,200 February 18 puts for $0.66 and the sale of an equal number of February 20 calls for about $0.39. Volume was more than 15 times the previous open interest at each strike.

The trade cost $0.27 and will make money if the Macau casino operator pushes lower in the next five weeks. It ensures an effective minimum selling price of $17.73 and a maximum of $19.73 because the short calls force the investor to unload shares if they go above $20.

The investor probably wants to protect a winning position in the stock and is willing to exit at a higher price. This strategy is known as a collar. (See our Education section)

MPEL is down 1.57 percent to $18.76 in afternoon trading but is up 39 percent in the last three months. The stock is now back near its highest level in almost six years, which could be leading some traders to expect a pause or a pullback.

Total option volume is quadruple the daily average so far in the session.
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