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November 6, 2012  Tue 1:47 AM CT

DLB: SEE CHART GET CHAIN FIND STRATEGIES
One investor Dolby Laboratories will move when it reports earnings this week.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,500 December 40 calls for $0.60. Volume was more than 8 times open interest at the strike, indicating that new money was put to work.

A large block of shares in the audio company was sold minutes later, indicating the use of a so-called delta-neutral strategy. Because the trader is long calls and short stock, he or she is now agnostic on the direction of the shares.

Instead of making money from a rally, the position will profit from volatility spiking higher. (See our Education section for more on how to make money from stocks moving sharply in either direction.)

DLB rose 2.17 percent to $34.84 yesterday and is up almost 12 percent in the last week. Although the stock has been lifting recently from long-term support around $30, it's still down by about 50 percent from its levels at the beginning of last year. Earnings come out tomorrow afternoon.

Short interest is also 15 percent of the float, which could potentially fuel movement in the share price.

Overall option volume was 16 times greater than average in the session, with calls outnumbering puts by 64 to 1.
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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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