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February 15, 2012  Wed 2:32 AM CT

WFT: SEE CHART GET CHAIN FIND STRATEGIES
Weatherford has made a nice move, but now traders are apparently taking profits.

optionMONSTER's tracking systems detected the sale of 50,000 January 20 calls for $2.02 in a single print against open interest of just 8,344 contracts. It was one of the largest trades in the entire market yesterday and accounted for most of the option volume in the oil field-service stock.

The investor is now obligated to sell shares for $20 if they close above that level on expiration early next year. He or she probably owns the stock and is using the options to manage their risk.

WFT fell 2.07 percent yesterday to close at $17.47. The stock had rallied from below $13 in mid-December to above $18 last week. It seems to have rolled over around the same $18 level that was support back in July, which could be leading some chart watchers to believe that resistance is in place.

Even if Weatherford continues higher in the long run, it may first need time to consolidate its recent gains. Selling calls is a common way for shareholders to make money on their positions as they wait.

The company is also scheduled to report fourth-quarter results on Feb. 21, another consideration that favors the strategy. (See our Education section)

Overall option volume in the name yesterday was more than triple its daily average.
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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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