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Options Trading News

March 22, 2013  Fri 2:45 AM CT

DISH: SEE CHART GET CHAIN FIND STRATEGIES
Dish Network has been rising amid takeover speculation this week, and traders are betting on a floor beneath the stock.

optionMONSTER's tracking systems detected heavy selling in the April 34 puts, which saw nearly 6,800 contracts trade yesterday mostly for $0.35. The volume was more than 3 times higher than the strike's open interest at the beginning of the day, indicating that this is new activity.

These short puts are looking for DISH to stay above the $34 strike price in the next four weeks. If the stock falls below that level, the traders will face the obligation to buy the shares at an effective price of $33.65 once the credit from the put selling is included. (See our Education section)

DISH gained 1.01 percent to $36.85 yesterday while the broader market sold off. The stock had fallen into a tight range between $34 and $35 after hitting resistance at five-year highs near $38 earlier this year, but shares spiked higher on Wednesday with speculation that the satellite-television company would be acquired by rival DirecTV.

Yesterday's trading pushed total option volume in the name past 8,000 contracts, quadruple its daily average for the last month.
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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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