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November 7, 2012  Wed 2:14 AM CT

WIN: SEE CHART GET CHAIN FIND STRATEGIES
Windstream has been falling for more than a month, and a large option trade is setting up for another leg down.

WIN fell 0.63 percent to $9.44 yesterday, its lowest close since August. Shares of the broadband technology company traded near resistance at $11 into late September before gapping lower.

More than 18,000 WIN options traded, compared with a daily average of 1,300. Most of the volume was in a large ratio spread, in which a trader bought 5,000 January 9 puts of $0.37 and sold 10,000 January 7.50 puts for $0.09.

This put spread costs the trader $0.19, which will be lost if WIN remains above $9 through expiration. The maximum profit would come if the stock is right around $7.50 at expiration. Below that, the trader is effectively long shares through the additional short puts. (See our Education section)
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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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