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December 13, 2013  Fri 4:14 AM CT

Quest Diagnostics has been falling hard, and traders apparently expect the selling to continue.

optionMONSTER's Depth Charge monitoring program detected the purchase of some 12,800 May 45 calls, most of which priced for $0.80 and $0.85. Volume was more than 450 times the previous open interest at the strike, indicating that new positions were initiated.

Puts lock in the price where a stock can be sold no matter how far it might fall, letting traders position for potential downside in the share price. Because of their low cost, the contracts can also generate significant leverage if the stock does push lower. (See our Education section)

DGX fell 2.52 percent to $53.81 yesterday, its lowest closing price in 18 months. While typically a very slow-moving name, the medical-testing company has been selling off in the last week after rival Laboratory Corporation of America said that uncertainty about the Affordable Care Act and high deductibles was hurting business.

Overall option volume in DGX was 21 times greater than average the session, according to the Depth Charge. Puts accounted for a bearish 80 percent of the total.
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Using puts to BUY stock

Puts are an options contract that gives buyers the right to sell their stock for a set price on or before a future date. However, puts can also be an effective way to BUY stock.

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