Complex three-way strategy in Humana
David Russell | firstname.lastname@example.org
optionMONSTER's Heat Seeker monitoring system detected the purchase of 1,319 November 77.50 calls for $4.70 and the sale of 1,978 November 87.50 calls for $1.20. A block of 1,978 November 65 puts were also sold for $1.80. Volume was more than quadruple open interest at all three strikes.
The trade cost $26,530, or $0.20 per call contract purchased. It will earn a maximum profit of about 4,900 percent if HUM stock closes at $87.50 on expiration. Gains will erode above that level and eventually turn to losses because they sold more calls than they purchased.
The investor may feel comfortable with that risk because the health-insurance stock traded around $87.50 in late April before gapping lower on a poor earnings report. He or she also faces potential losses under $65, but that might not be considered likely because it's below the lows of the last year.
HUM is down 0.38 percent to $75.98 in morning trading. Today's three-way trade accounted for almost all the option volume in the name so far in the session.