Options Trading News

March 14, 2013  Thu 2:45 AM CT

One investor is using options to position for a breakout in Cardinal Health.

Our Heat Seeker monitoring system detected the purchase of 5,000 April 48 calls for $0.40. A matching number of April 45 puts was sold at the same for $0.475.

The trader collected a credit of $0.075 and now stands to earn huge profits if CAH breaks above $48 in the next five weeks. They also will be forced to buy shares for $45 if they drop to that level.

The benefit of the strategy is that the investor is assured of not missing a rally in the share price, without paying anything upfront. (See our Education section for more on how options can be used to manage trades.)

CAH closed a penny higher at $46.84 yesterday and is up 24 percent in the last six months. The supplier of medical products has been consolidating at its highest levels in more than five years. That could make some traders expect a big rally if it breaks resistance, helping explain yesterday's transaction.

Total option volume was 6 times greater than average in the session, according to the Heat Seeker.
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I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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