Options Trading News

February 4, 2013  Mon 12:21 PM CT

Someone is looking for fireworks when Centene reports fourth-quarter results tomorrow morning.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 3,119 March 47.50 calls for $0.90 and the sale of an equal number of March 37.50 puts for $0.45. Volume was more than twice open interest at both strikes.

The investor now stands to make money on the long calls if the stock rallies but will face potential losses in the event of a drop. While similar to owning shares, the main difference is that the position will track movements in the company less closely as time passes and expire worthless if it remains between $37.50 and $47.50.

The trader is probably using the strategy as an inexpensive bullish bet because selling the puts lowered the entry price to just $0.45. He or she will now profit from a sharp rally, which could occur if the quarterly results are strong. (See our Education section)

CNC is down 0.92 percent to $43.40 in afternoon trading. The provider of health-care benefits climbed more than 50 percent last summer after a big drop but has been trapped in a range since.

Today's bullish trade pushed total option volume to 14 times greater than average, according to the Heat Seeker.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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