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February 25, 2013  Mon 2:14 AM CT

PCS: SEE CHART GET CHAIN FIND STRATEGIES
MetroPCS Communications reports earnings tomorrow morning, but one trader apparently thinks that it will be a snooze.

optionMONSTER's tracking systems detected the sale of 4,000 April 10 puts for $0.61 and 4,000 April 12 calls for $0.15. That totals $0.76, which the investor will keep as profit if the wireless-communications carrier closes between the two strike prices at expiration. Gains will erode outside that range, turning to losses below $9.24 and above $12.76.

The strategy stands to benefit from an uneventful earnings report because that would cause implied volatility, and therefore option prices, to drop. Known as a short strangle, the trade is designed to make money from the passage of time rather than a directional bet. (See our Education section)

PCS fell 1.29 percent to $9.95 on Friday. Shares have traded mostly between $9.50 and $10.50 for the last three months.

It's noteworthy that the trader chose the $10 and $12 levels in the short strangle because it suggests an expectation for modest upside in the next eight weeks. The trade accounted for more than 80 percent of the option volume in PCS on Friday.
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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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