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October 16, 2012  Tue 2:14 AM CT

VLO: SEE CHART GET CHAIN FIND STRATEGIES
One investor wants to take the money and run in Valero Energy.

optionMONSTER's Depth Charge tracking system detected the purchase of 3,600 December 22 puts for $0.24 and the sale of an equal number of December 26 calls for $3.05. Volume was more than 4 times open interest at each strike, and the trader collected a credit of $2.81.

He or she probably owns shares in the oil refiner, and this strategy will let them manage an exit from the position. Writing the calls locks in an exit price of $26 while the puts ensure a minimum selling price of $22. (See our Education section)

Including the credit earned, the maximum sale price would be $28.81 and the minimum sale price would be $24.81. If the stock closes between the strike prices on expiration, the trader will keep the shares and pocket the $2.81.

VLO fell 0.69 percent to $28.81 yesterday. It rallied about 60 percent between early June and early September but has been drifting lower since. Total option volume in the name was more than twice average amounts in the session, according to the Depth Charge.
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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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