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June 14, 2013  Fri 12:20 PM CT

MHR: SEE CHART GET CHAIN FIND STRATEGIES
Magnum Hunter is off its recent highs, but one investor is confident that it won't go much lower in the long term.

optionMONSTER's trade scanners detected the sale of 5,000 January 2015 4 puts for $1.15. Volume was 50 times previous open interest, indicating that a new position was initiated.

The trader is now obligated to buy shares in the Houston-based oil driller for $4 if they close below that level 18 months from now, but the price would be $2.85 including the put credit received today. If the stock goes above $4, he or she will keep the $1.15 credit as the contracts expire worthless. (See our Education section for more on put selling.)

MHR trading at $3.85 this afternoon, down 1.28 percent on the session but up 14 percent in the last month. Total option volume is already almost 6 times greater than average so far.
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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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