Options Trading News

November 21, 2012  Wed 2:45 AM CT

Aetna has been consolidating for more than a year, and one investor apparently wants protection on the name.

optionMONSTER's Depth Charge tracking program detected the purchase of 7,000 July 40 puts for $3.20 and the sale of an equal number of July 33 puts for $1.02. There was barely any open interest at either strike before the trade appeared, so this is a new position.

The trade cost $2.18 and will earn a maximum profit of 221 percent if the health-insurance stock closes at or below $33 on expiration. (See our Education section for more on the strategy, which is known as a bearish put spread because it leverages a move between two price points.)

AET rose 0.34 percent to $41.85 yesterday. The stock rallied about 28 percent between July and October but has been falling again this month.

Yesterday's option trader probably bought shares on the last pullback and now is using the put spread to hedge that long position. Total option volume was triple the daily average, with puts outnumbering calls by 24 to 1.
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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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