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October 4, 2012  Thu 11:35 AM CT

STX: SEE CHART GET CHAIN FIND STRATEGIES
Seagate is holding the $30 level, but today's option activity anticipates only limited upside.

A trader sold 6,400 January 34 calls for the bid price of $1.20, according to optionMONSTER's tracking systems. That volume was nearly 10 times the open interest of 654 contracts in the strike at the start of the session, clearly indicating a new position.

The call selling is based on the idea that STX won't see much upside beyond $34. The options may have been sold naked with an initial bearish bias, or they could have been traded against long stock in a covered call position. The latter would be bullish up to the strike price but not above it. (See our Education section)

STX is up 0.47 percent at $30.19 this afternoon and has held support at this level for the last month. The computer hard-drive maker hit a 52-week high of $35.71 in mid-August.
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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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