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August 23, 2013  Fri 12:08 PM CT

DAR: SEE CHART GET CHAIN FIND STRATEGIES
One investor is betting that Darling International will live up to its name.

optionMONSTER's Heat Seeker system shows that 2,500 October 20 calls were sold for $1.50 while 2,500 January 22.50 calls were bought for $0.70 seconds later. Volume was below previous open interest in the October strike but above it in the January contracts.

This indicates that an investor is rolling a long-call position forward, taking some profits off the table while staying in the trade at a higher strike. The new calls are looking for DAR to rally above $22.50 by mid-January but could expire worthless if shares remain below that level. (See our Education section)

DAR is up 7.09 percent to $20.69 in afternoon trading after spiking to an all-time high of $22.20 right after the market opened. Darling, which provides cooking-waste recycling and recovery services to the food industry, announced this morning that it was buying the animal-rendering unit of Canadian company Maple Leaf Foods for $613 million.

Shares peaked at $21.35 on Aug. 5 but fell after the company reported second-quarter results a few days later. The stock was down at $15 last November.

Total option volume in DAR is 5,423 so far today, above its full-session average for the last month. Only 67 of those contracts are puts.
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Education & Strategy

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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