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April 10, 2013  Wed 4:14 AM CT

LDK: SEE CHART GET CHAIN FIND STRATEGIES
LDK Solar came back to life yesterday after declining for months, and traders apparently believe that the stock will hold its ground through the end of next week.

About 6,850 April 1 puts traded in a strong selling pattern yesterday, with most of them going for $0.10, according to optionMONSTER's tracking systems. The volume was more than triple the strike's open interest of 2,187 contracts before the session began, indicating new activity.

The put sellers are betting that LDK will stay above $1 through April 19, a day after the company is scheduled to release quarterly results. If the stock falls below that strike price, the traders will be on the hook to buy shares at that level. (See our Education section)

The Chinese solar-panel manufacturer rose 23.36 percent to $1.32 after market leader First Solar soared more than 40 percent on strong outlook for 2013, making it the biggest gainer in the S&P 500 yesterday. The move helped boost LDK, which had been falling all year and struggling to stay above $1 this month.

Even before yesterday's surge, solar names have been showing signs of improvement recently on our researchLAB analysis tool. The group is down 18 percent in the last 12 months but has gained 3 percent in the last week, as shown on the screen shot below.

Yesterday's short puts made up the bulk of trading in LDK yesterday, which saw total option volume of 12,705 contracts compared with a daily average of just 868 contracts.

solar41013.png

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Education & Strategy

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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