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AOL activity brightens after pullback

David Russell (david.russell@optionmonster.com)

AOL has pulled back after a huge rally, and now investors are logging back on.

optionMONSTER's tracking programs detected heavy put selling in the Internet stock on Friday, along with some moderate call buying .

The biggest trade appeared in the February 27 puts, with some 5,000 sold for $0.65 against open interest of just 12 contracts. The seller is now obligated to buy AOL shares for $27 if they close below that level on expiration, but if it remains above $27 they will keep the $0.65 and the puts will expire worthless.

AOL closed at $29.43 on Friday, down 1.24 percent on the session. It began 2012 trading for about $15, shot up to $43.93 and has been retreating since. The shares are now back near the same level where they peaked in July, which could make some chart watchers expect buyers to step in.

The advantage of selling puts is that can yield profits when a stock doesn't rally or even declines slightly. The risk is that a big drop can be very painful. (See our Education section)

Activity shifted to the April 26 puts near Friday's close, with almost 4,600 sold for $0.95 versus previous positioning of just 69 contracts. The session also saw the purchase of more than 2,400 February 30 calls for $1.35 to $1.45. Those are more aggressively bullish because they require a move higher to make money.

Total option volume in AOL was 10 times greater than average.

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