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WellCare Health Plans, Inc. Message Board

  • wwwhead222 wwwhead222 Nov 13, 2007 10:41 PM Flag

    Ignoring the Options Factor

    I see people touch on the subject of options, but I think there might be just a little more to the story of the call options.

    Strike Open Interest
    20.00 1,871
    22.50 1,088
    25.00 2,079
    30.00 3,450
    35.00 4,045

    1,253,300 = Total number of shares that must be delivered if WCG closes ABOVE $35 Friday afternoon.
    848,811 = Total number of shares that must be delivered if WCG closes BELOW $35 Friday afternoon.

    That means that if WCG closes above $35 at options expiration in a couple of days that 404,500 shares would have to be delivered to the owners of those November calls. Do you think that those call writers actually have the 404K shares to deliver? If not that gives them $14,157,500 (404K * $35) reasons to keep the PPS at or below $35 come this Friday.

    I have seen this with other stocks where the closing price at options expiration magically settles on a number where neither the puts nor the calls make money. Is there something to my reasoning or am I just adding to conspiracy theories?

    BTW, How do other people on this board interpret today's price action. There was definitely buyer(s) placing a floor under WCG at $35.20ish. Along the lines of my options theory, it was as though someone was saying, "I know you want to push this price below $35, but it ain't gonna happen today."

    As a long since the low 20's, I would personally be very happy to see this kind of support continue from institutions that certainly have deeper pockets than anyone lurking on this board! There was definite accumulation going on today - if it continues through the end of this week I'm sure the shorts will throw in the towel sooner rather than later....

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    • I'm just thinking that we now have 400K fewer obstacles to a rise in share price for WCG now that those November $35 call options are expired.

      Can I get just a little kudos even though it is not a fabulously brilliant observation made in my original post on 11/13?
      (1,253,300 = Total number of shares that must be delivered if WCG closes ABOVE $35 Friday afternoon.
      848,811 = Total number of shares that must be delivered if WCG closes BELOW $35 Friday afternoon.)

      With WCG successfully closed under $35, about 400K shares did not have to be delivered to the owners of those calls. Who wants to bet that many of those calls were written when WCG was below 30 and the writers were not covered?

      With the article below, one has to wonder if the Wall Street Journal got it right from the start. They were the ones to say the Feds were looking for $35M in overpayments over the course of 5 years. Now, the first details of the warrant read, "a search warrant that sought 26 kinds of items from the past five years".

      http://www2.tbo.com/content/2007/nov/17/na-wellcare-raid-reaps-ceos-notes/?news-breaking

    • Actually this is the only reasonable explanation I have heard regarding yesterdays action. If it happens again today we will know more or less for sure. It seemed obvious that it was being held in one place by forces with an agenda.

      • 1 Reply to lancealot111
      • Thanks for the replies...it is very hard for me to tell with this one. It certainly feels like WCG wants to head north to $40. But, we may have to wait until after options expiration for this to play out.

        That is the good part about owning the actual shares instead of options...another week or two does not really hurt the value of your investment. But, those holding November call options are seeing the time value erode quickly at this point.

        Does anybody know when we updated/outdated shares short information gets released? I, for one, would like to know how many shorts are still playing with fire.

    • Thanks for your insightful post. I am a economic/finance college student, and I learn on ton about how the market really works by visiting these boards. The imbalance of call/put positions leads to one and only one conclusion. The MMs sell the options. The 400k call put disparaity is sizable. Barring no new information on this stock, there's is no way in hell it be above $35 on Friday. The big boys will control the price action, so that they can maximize profits. The will do this by unloading shares. In addition, they probably want to unload these shares because this stock is on shaky footing. This opportunity provides them an easy out without deteriorating the share price because there are money managers with lots of underwritten puts on the other side that will buy those shares to prop up the share price. Bottom line, there are a lot more factors that are going to bring this stock down, then prop it up. I will be amazed if this stock is trading where it closed today come friday afternoon. As one of my professors always says, if you want to predict what's going to happen in the short term, put yourself in the shoes of a neurotic money manager.

    • This is going above 40 this week. But todays action look weired to me. Either it will be in 40s or 34s tomorrow.

 
WCG
84.25+1.41(+1.70%)Dec 26 4:02 PMEST

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