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October 18, 2013  Fri 3:16 AM CT

GFI: SEE CHART GET CHAIN FIND STRATEGIES
One trader has resorted to strangling Gold Fields to get a profit.

Nearly 20,000 GFI options have traded yesterday, compared to a daily average of 665 in the last month. Almost all of the action was in one combination trade.

More than 8,000 each of the April 4 puts and April 5 calls changed hands, according to optionMONSTER systems. This is clearly new positioning, as each strike had previous open interest of fewer than 900 contracts.

The big blocks of 7,500 went off in seconds, with the calls sold for $0.51 and the puts sold for $0.39, both their respective bid prices.

The trader is selling a strangle position to profit from range-bound trading in the stock. He or she takes in a credit of $0.80, so the trade would be profitable with GFI anywhere between $3.20 and $5.80 at expiration in mid-April 2014. (See our Education section)

GFI rose 2.76 percent to $4.47. The South African mining company was above $6 in late August but hit a low of $4.26 on Tuesday.

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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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