Medco Health Solutions started the week to the downside, and now the bears are looking for more.
optionMONSTER's Depth Charge tracking system detected the purchase of 5,100 April 55 puts for $3.50 and the sale of 10,200 April 47.50 puts for $1.50. Volume was more than twice open interest in both strikes.
The trade resulted in cost of $0.50 and will earn a maximum profit of 1,400 percent if MHS closes at $47.50 on expiration. The gains will erode below that level and turn to losses under $40.
MHS is down 0.28 percent to $60.65 today. It's attempting to rebound from an 8 percent drop on Monday after a report that some pharmacy chains were asking the Federal Trade Commission to block the company's merger with Express Scripts.
Today's option trade is known as a ratio spread because twice as many downside puts were sold than were bought closer to the money. That reduces the cost basis and increases the leverage. But if it drops too far, he or she will be forced to buy shares at the $47.50 level. (See our Education section)
Overall option volume in MHS is more than twice the average amount so far today, with puts outnumbering calls by more than 9 to 1.
More From optionMONSTER
European stocks rose for a third straight session on Monday and the euro bounced back from two-year lows, as Greek …
There are no comments yet