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October 3, 2012  Wed 9:40 AM CT

FFIV: SEE CHART GET CHAIN FIND STRATEGIES
A large strategy that combines stock and options is designed to profit from F5 Networks making a big move higher or lower.

optionMONSTER's Depth Charge system shows that 4,000 November 100 puts were bought for the ask price of $4.35 in a single print. The volume is more than 10 times the open interest in the strike at the start of the session, clearly signaling a new position.

Just after the put buying, the largest block of FFIV stock traded when a print of 128,000 shares was bought for $107.6375. This means that the combined stock-and-option position is delta-neutral and therefore focused on volatility, rather than the direction of the shares. (See our Education section)

The trader is looking for a sharp move up or down and can also profit if the actual volatility is greater than that implied by the options. The implied volatility of those puts is 51 percent, while the 30-day historical volatility is down to five-month lows of 35 percent.

FFIV is down fractionally this morning at $106.47. The networking-technology company was above $110 last week as it trended higher from support and 2012 lows around $90.
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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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