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June 27, 2013  Thu 9:27 AM CT

STO: SEE CHART GET CHAIN FIND STRATEGIES
A large trade sees limited upside in Statoil.

More than 5,200 STO options have changed hands this morning, more than 10 times its daily average for the last month. Almost all of that volume was in one trade.

optionMONSTER systems show that a trader sold 5,000 October 22.50 calls for the bid price of $0.40. The previous open interest was only 681 contracts, so this is a new position.

The call selling is a bet that STO won't see much above that strike. A couple of minutes later, a block of 500,000 shares was bought for $20.95, so the result is a covered call position. The trade takes a maximum profit with STO at or above $22.50, but the strategy does give up any upside beyond that price. (See our Education section)

STO is up 1.5 percent to $20.83. it hit $20.02 last week, a new low. Shares of the Norwegian energy company have been trending lower since hitting $27 at the start of February.
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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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