Market News

November 20, 2012  Tue 10:03 AM CT

One investor is worried that Cigna might give up its recent gains.

optionMONSTER's Depth Charge monitoring program detected the purchase of 11,300 July 50 puts for $3.71 and the sale of an equal number of July 40 calls for $0.90. There was no open interest at either strike before the trade appeared, indicating that new positions were initiated.

Known as a bearish put spread, the strategy is designed to leverage a move between two price points. It cost $2.81 and will earn a maximum profit of 256 percent if the Connecticut-based health insurer closes at or below $40 on expiration. (See our Education section for more on how to amplify stock moves using options.)

CI is down 1.16 percent to $51.30 in morning trading. It rallied more than 30 percent between late July and early November amid several bullish earnings reports. Shares proceeded to hit their highest price since early 2008 but have been drifting lower since.

Total option volume is 15 times greater than average so far in the session, with puts outnumbering calls by more than 400 to 1.
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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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