Options Trading News

March 20, 2013  Wed 2:45 AM CT

Humana fell last month, but one investor apparently thinks that it's ready to bounce.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,000 April 72.50 calls for an average premium of $1.725 and the sale of an equal number of April 77.50 calls for $0.45. Volume was below open interest at the higher strike, so there are two possible
explanations of the activity.

One is that a new bullish call spread was initiated. Alternatively, the trader may have previously owned the 77.50 calls and rolled the position down to the 72.50s. That would more than triple their delta to 0.39 from 0.12, increasing gains in the event of a rally. (See our Education section for more on option greeks.)

Either way, the trader paid $1.275 for the trade and is looking for a push above the $73 area by expiration in mid-April.

HUM fell 0.13 percent to $70.27 yesterday. It gapped down on Feb. 19 after the federal government proposed cutting payments on Medicare Advantage insurance programs it administers. The shares made a higher low early this month despite the drop, which could make some traders bullish over the longer term.

Total option volume was more than twice the daily average in the session, according to the Heat Seeker. Calls outnumbered puts by about 3 to 1.
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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.

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