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June 25, 2013  Tue 3:47 AM CT

DVA: SEE CHART GET CHAIN FIND STRATEGIES
DaVita HealthCare has fallen sharply in the last week, but one trader is betting that further losses will be limited.

optionMONSTER's tracking systems show that 9,217 July 115 puts were sold in a single print for $1.60 yesterday. This is clearly a new position, as the open interest in the strike was just 829 contracts before the trade appeared.

The put seller will keep the $1.60 credit as profit if DVA stays above the $115 strike price through expiration in mid-July. But if the stock is below that level, the trader will be on the hook to buy the shares at an effective price of $113.40 when that credit is included. (See our Education section)

DVA was down 0.37 percent to close at $123.04 yesterday but has not traded below $115 since late February. The provider of kidney-dialysis services shot higher on May 8 after first-quarter results beat estimates on the top and bottom lines, hitting a lifetime peak of $131.33 two sessions later. But the stock has given up most of those gains in the last week, falling below its 50-day moving average.

Total option volume in the named was just shy of 12,300 contracts, 20 times its average volume in the last month.
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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.

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