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September 12, 2013  Thu 2:45 AM CT

MBI: SEE CHART GET CHAIN FIND STRATEGIES
Bond-insurance firm MBIA attracted a large call trade yesterday as shares continued to fall.

A trader bought 10,000 January 13 calls for the ask price of $0.59 and sold the same number of January 16 calls for the bid price of $0.12, according to optionMONSTER's Heat Seeker system. Volume was above previous open interest in the lower strike but below it in the higher contracts.

The trader could be rolling a long-call position down or opening a vertical spread. In the latter case, he or she is spending $0.47 for the possibility to make  $2.53 if MBI is above $16 at expiration in mid-January. (See our Education section)

MBI finished the day down 2.87 percent to $11.52, its lowest closing price since shares gapped much higher in early May. They got above $16 shortly after that but then trended lower from there. 
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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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