OptionsHouse

Options Trading News

March 20, 2013  Wed 3:16 AM CT

CAH: SEE CHART GET CHAIN FIND STRATEGIES
Cardinal Health got hammered yesterday, but one investor is braving the selloff.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 5,000 May 44 calls for $0.80 and the sale of an equal number of May 50 puts for $0.55. There was no open interest at either strike before the trade occurred, indicating that a new trade was initiated.

The resulting position will make money if CAH rallies and lose money if it drops. While similar to owning shares, it differs because it will track movements in the stock price less closely as time passes and become worthless if the stock remains between the two strike prices on expiration two months from now.

Its cheap $0.25 entry price is its main advantage, letting the investor place a low-cost upside bet. That reduces the capital at risk while also programming a buy order should it drop to $40--a level the drug distributor hasn't seen since early December. (See our Education section for more on how options can help you manage risk.)

CAH plunged 8.19 percent to $42.35 yesterday after losing a major contract to Walgreen. WAG accounted for more than one-fifth of the company's revenues last year.

Nonetheless, CAH is now back to a level where it consolidated heavily last year, which could be leading some chart watchers to expect a bounce. In a separate trade, an investor sold more than 10,000 April 45 puts for $2.55, looking for the shares to hold their ground.

Total option volume in CAH was 13 times greater than average in yesterday's session, according to the Heat Seeker.

Disclosure: I own CAH shares.
Share this article with your friends


Related Stories

CAH

Traders look for floor in Cardinal Health

February 11, 2016

The health-care service company has fallen 11 percent in the last three months, but traders apparently believe that further downside potential will be limited.

OptionsHouse

Premium Services

Upcoming Webinar:

Using Options For Income

http://bit.ly/1nY1OKA

Jon Najarian and Adam Mesh of Options Wealth Machine discuss a detailed strategy utilizing credit spreads to generate income, and how any level of trader can use this simple trading technique.

Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

View more education articles »