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January 9, 2013  Wed 2:14 AM CT

TPX: SEE CHART GET CHAIN FIND STRATEGIES
One investor apparently thinks that Tempur-Pedic has run out of gas.

optionMONSTER's Depth Charge tracking program detected the purchase of about 7,000 February 33 puts for $2.30 and the sale of a matching number of February 34 calls for $2.10. Volume was more than 100 times open interest at each strike, indicating that new positions were initiated.

Known as a collar, the trade cost $0.20 and will make money from the high-tech mattress company losing value. It essentially locks in a minimum selling price of $32.80 and a maximum selling price of $33.80.

Investors often use this strategy because it can be easier than unloading shares and because it won't take effect if the stock remains range-bound. In this case, the range is between $33 and $34.

Alternatively, yesterday's trade could be the work of a speculative bear who is buying a cheap way to leverage a drop. That would result in a naked short position if TPX goes over $34. (See our Education section for more ways to make directional bets without trading common stock.)

TPX rose 0.03 percent to $33.52 yesterday. The stock has lost more than half its value since last April, gapping lower after several successive earnings reports as competitors continued to take away market share. It has been trying to rebound since mid-November, which could be leading some traders to believe that it's vulnerable to rolling over.

Total option volume was 25 times greater than average in the session, according to the Depth Charge.
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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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