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December 24, 2012  Mon 10:10 AM CT

WTR: SEE CHART GET CHAIN FIND STRATEGIES
Aqua America hardly usually sees very little option activity, but today call buyers are looking for the water utility to track back near the high end of a five-month range.

optionMONSTER's Heat Seeker systems shows that 1,430 March 25 calls have traded in a strong buying pattern, with premiums rising from $0.65 to $0.90. The volume isn't huge but is well above the strike's previous open interest of 389 contracts and dwarfs the name's total daily average of 52 options.

WTR is up 0.62 percent to $25 even, sitting right at its 100-day moving average and just below its 50-day line. The stock failed to break through resistance at its 52-week highs near $27 in July and has been trapped between $24 and $26 since then.

The March 25 calls, which lock in the price where traders can buy the stock, are looking for shares to trade back near the top of that channel by expiration in mid-March. (See our Education section)

The strike's activity has made up nearly all of WTR's total option volume of 1,495, which is 29 times higher than usual. A grand total of 3 puts have changed hands in the name all day.
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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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