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May 2, 2013  Thu 3:47 AM CT

ABB: SEE CHART GET CHAIN FIND STRATEGIES
Swiss electrical-systems maker ABB is at its highest levels in more than 1-1/2 years, but one trader is positioning for a potential drop by summer.

optionMONSTER's Depth Charge system detected the purchase of 3,000 June 21 puts for $0.35 yesterday. The volume was 13 times higher than the strike's previous open interest of just 225 contracts, clearly showing that this is fresh buying.

ABB fell 1.4 percent yesterday to close at $22.25. The Zurich-based company gapped higher on April 24 after its first-quarter earnings report but hit a resistance level above $23 that goes back to August 2011.

Yesterday's put buying, which locks in the price where the stock can be sold no matter how far it might fall, did not appear tied to any shares traded in the session. These options could be making an outright bearish bet but, given ABB's recent pop, they could also be a hedge to protect gains in a long position established earlier. (See our Education section)

Only 96 calls traded in the entire session, a reflection of the day's bearish sentiment.
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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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