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August 16, 2013  Fri 4:14 AM CT

Alcoa reversed morning losses yesterday but saw heavy put buying.

optionMONSTER's Depth Charge system shows that a trader bought 12,593 January 7 puts in two prints for $0.19 and $0.20 yesterday. The volume was above the strike's previous open interest of 10,272 contracts, so this is a new position.

These puts, which lock in the price where the stock can be sold no matter how far it might fall, can be used to hedge a long-stock position or to make an outright bearish bet. Either way, they will expire worthless if AA stays above $7 through mid-January. (See our Education section)

AA began yesterday in the red but rebounded sharply in the afternoon to finish the session unchanged at $8.16. The aluminum producer bounced off support below $8 last week but pulled back again after failing to break through its 100-day moving average. The stock hasn't traded below $7 since April 2009.

Total option volume in AA surpassed 47,000 contracts yesterday, more than triple its daily average for the last month. Overall puts outpaced calls by more than 2 to 1.
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So far, my articles have taken you through a logical progression of option theory and fundamental concepts of options. As of yet, I have not mentioned a single strategy and for a good reason! The actual application of a strategy should come AFTER you learn about the option product itself.

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