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March 12, 2013  Tue 4:14 AM CT

UNP: SEE CHART GET CHAIN FIND STRATEGIES
Union Pacific is just below its all-time high, and traders are betting that the railroad operator will hold onto most of its gains in the next several weeks.

optionMONSTER's tracking systems detected heavy selling in the April 135 puts yesterday, led by a print of 3,200 that went for $1.80. This is clearly a new position, as the open interest in the strike was 1,003 contracts before the session began.

UNP rose 0.71 percent to $139.69 yesterday, not far from its lifetime high of $140.84 reached last Wednesday. The railroad operator has been rising steadily for more than a year along with the rest of the sector, which is up more than 36 percent in the last 12 months, according to our researchLAB analysis tool.

Yesterday's large put seller is looking for UNP to stay above the $135 strike price through expiration in mid-April. If the stock falls below that level, the trader will face the obligation to buy shares at an effective price of $133.20 once the credit from the put sale is included. (See our Education section)

The company is scheduled to report first-quarter earnings on April 18, one day before these contracts expire. The trade follows bullish option activity in the name late last month, which saw call buying at the April 140 strike.

The put selling pushed total option volume in the name past 8,400 contracts yesterday, more than 65 percent higher than its daily average in the last month.
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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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