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November 27, 2012  Tue 2:14 AM CT

EXEL: SEE CHART GET CHAIN FIND STRATEGIES
Biotech company Exelixis slipped yesterday, and one trader sees limited upside potential for the near term.

optionMONSTER's scanners detected the sale of more than 5,400 May 6 calls, led by a block of 4,320 that went for $0.75. Open interest in the strike was just 194 contracts at the start of the session, so this is clearly a new position.

The calls could have been sold naked in a trade that has an initial bearish bias but could profit with EXEL anywhere below $6.75 at expiration in mid-May. It is also possible that the options were traded against an existing long position in a covered call position, which would be bullish up to the strike price but would not partake in any stock gains above that level. (See our Education section)

EXEL was down 1.33 percent to close the session at $5.20 after gaining in the previous five sessions. Shares carved out their 2012 range in the last week of July and first of August, hitting $6.95 then quickly falling to lows and long-term support at $4.25.
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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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