Options Trading News

March 13, 2013  Wed 9:55 AM CT

Some traders think that nothing can stop McKesson's advance.

The provider of pharmaceuticals and health-care IT services has been in a steady uptrend for years and has already appreciated 14 percent so far in 2013. A weak earnings report in late January did little to halt the rally.

Now the options paper is lighting up. Our Heat Seeker monitoring program detected the purchase of about 1,700 April 120 calls for $0.15. There was no previous open interest at the strike, which means that new money was put to work on the long side.

Long calls lock in the price where investors can buy shares, no matter how high they may go. Given the cheapness of the contracts, they can generate extreme leverage in the event of even a small move. But they can also lose all their value if it doesn't move far enough fast enough.

MCK is up 0.74 percent to $110.66 in morning trading. A gain of 10 percent over the next 5-1/2 weeks will cause those April 120s to appreciate by more than 1,000 percent. (See our Education section for more on how to place cheap bullish and bearish bets with limited risk.)

Total option volume is triple the daily average in MCK so far today, according to the Heat Seeker. Calls outnumber puts by a bullish 20-to-1 ratio.
Share this article with your friends



The fastest money in the market
View full report »

Premium Services

Education & Strategy

The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

View more education articles »