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February 27, 2013  Wed 4:45 AM CT

XLNX: SEE CHART GET CHAIN FIND STRATEGIES
Xilinx has pulled back with the rest of the market in the last week, but now the bulls are jumping in.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 3,400 March 37 calls, most of which priced for $0.60 to $0.68. Volume exceeded the strike's previous open interest of 2,396 contracts, indicating that new money is being put to work in the semiconductor company.

The investor now has the right to buy XLNX for $37 in the next three weeks, no matter how high it may climb. That can result in significant leverage in the event of a rally: For instance, a gain of just 10 percent will translate into a profit of about 275 percent. (See our Education section)

XLNX fell 1.69 percent to end the session at $36.67. The stock touched an eight-year high earlier this month but has been pulling back in the last week. Yesterday's decline brought the stock back to its 50-day moving average, which could draw momentum traders to the name.

The gains have come despite weak revenue the last two quarters, and now management anticipates stronger demand from industrial and aerospace customers.

Total option volume was 6 times greater than average the session, with calls accounting for more than three-quarters of the total.
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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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