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September 26, 2013  Thu 2:45 AM CT

SWY: SEE CHART GET CHAIN FIND STRATEGIES
One trader is looking for lower volatility in Safeway with shares near five-year highs  

optionMONSTER systems detected the sale of 5,000 January 32 puts for the bid price of $1.35. This is clearly a new position, as open interest in the strike was just 704 contracts before the trade appeared.

Less than two minutes later, 160,000 SWY shares traded for $32.0625. Combined with the short puts, this creates an overall delta-neutral position that is designed to profit from volatility that comes in lower than what is implied by the options. (See our Education section)

SWY was down 0.5 percent to $31.92 yesterday, one session after seeing its highest close since June 2008. Shares of the supermarket chain have doubled in the last year.
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The sweet spot

When using the Stock Replacement Strategy, we must remember that in reality, we are doing a STOCK trade. We are just using options. We are replacing the stock position with an option position (long calls).

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