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January 14, 2013  Mon 2:14 AM CT

MGA: SEE CHART GET CHAIN FIND STRATEGIES
Traders are positioning for a potential pullback in Magna International with the auto-parts supplier's shares near 52-week highs.

More than 3,000 January 50 puts traded in a strong buying pattern on Friday for prices ranging from $0.12 to $0.25, optionMONSTER's Depth Charge system shows. These are new positions, as the open interest in the strike was just 44 contracts at the beginning of the day.

MGA fell 0.66 percent to $51.51 on Friday but is only $1 from its 52-week high of $52.51 reached two sessions earlier. Shares have been running higher since early December, when they broke out of a range that had been in place for the previous four months.

Friday's puts, which lock in the price where shares can be sold, were not tied to any stock trades identified by our systems during the session. The options could have been bought as protection on a long position established earlier or as an outright bearish bet that the stock will fall roughly 3 percent or more by expiration on Jan. 18. (See our Education section)

The trades pushed MGA's total option volume to 3,835, compared with a daily average of just 135 contracts in the last month. Only 228 calls changed hands in the entire session, a reflection of the day's bearish sentiment.
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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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