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March 12, 2014  Wed 9:50 AM CT

RNF: SEE CHART GET CHAIN FIND STRATEGIES
An interesting call trade leads today's option activity in fertilizer company Rentech Nitrogen.

More than 9,400 RNF options have traded so far, compared to a full-session average of just 646 in the last month. Virtually all of the action was in one trade.

A block of 5,384 July 17.50 calls was sold for the bid price of $2.25 against previous open interest of 5,515, according to optionMONSTER systems. At the same time, a block of 4,038 January calls was bought for the ask price of $3.60 with open interest of only 3 contracts at that strike, clearly showing that it is a new position.

This could be a new calendar spread, which would actually be bearish because it is in the money and would take a maximum profit with RNF down at $17.50. But it is more likely a roll, with the trader closing the position in July and rolling the long calls to the January strike. (See our Education section)

RNF is down 3.84 percent to $17.96 after disappointing quarterly results yesterday. The stock traded above $20 last week, and today's losses take it back only to levels of Feb. 26.
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Education & Strategy

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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