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Big Option Trades In Tenet Healthcare Ahead Of Earnings

Wayne Duggan

Tenet Healthcare Corp (NYSE: THC) shares are up 19.2% in the past week after the company announced it's spinning off its payment processor Conifer after failing to find a buyer.

Tenet shares have recovered a large chunk of their nearly 50% losses over the past year following the news, but it appears one large option trader sees more upside ahead for Tenet ahead of earnings Aug. 5.

The Trade

On Friday, Benzinga Pro subscribers received an options alert related to two large Tenet option trades.

At 9:03 a.m. ET, a trader sold 2,959 Tenet put options with a $18 strike price expiring on Aug. 16 at the bid price of 35.1 cents. The trade represented a bullish bet worth $103,860 that Tenet shares will stay above $17.65 following earnings.

About eight minutes later, potentially the same trader bought 2,100 Tenet call options with a $20 strike price expiring on Aug. 16 at the ask price of $1.95 cents. The trade represented a bullish bet worth $409,500 at a break-even price of $21.95.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the two trades by institutional standards, they are unlikely to be hedges.

Earnings Beat Coming?

Friday’s option trader may expect Tenet to follow up its spin-off news with an earnings beat. Given that the expiration date on the contracts bought and sold is within two weeks of the company’s earnings date, it appears the trade is more a play on the stock’s bullish near-term momentum than the longer-term outlook for Tenet.

If the two trades were, in fact, placed by the same trader, that trader may see the Conifer news as a near-term bottom for Tenet stock. Selling puts and buying calls represents a fundamental shift from a bearish outlook to a bullish one. Friday’s option trader seems to shifted his or her near-term expectations for Tenet stock from below $17.65 within three weeks to above $21.95.

Stock traders will be watching the option market closely throughout the next couple of days for additional insight into Tenet’s spin-off, its upcoming earnings report and the impact the spin-off could have on Tenet’s $4.2 billion in debt due in 2020 and 2021.

The stock traded around $21.59 per share at time of publication.

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