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Call Buyers Keep Betting on Booming Centene Stock

Josh Selway

Centene Corp (NYSE:CNC) shares are building off of Friday's 5.3% rally, up 2.8% at $59.16, putting them on pace for the highest close since mid-March, and the first above the 320-day moving average since around the same time. Another weekly win this week would be an eighth straight for the healthcare stock, and even with the $60 region standing overhead as a potential roadblock, options traders are betting on more upside for CNC.

cnc stock nov 18

There's been huge activity at the December 62.50 call today, by far the most popular contract with more than 17,000 traded so far. New positions are opening, suggesting traders could be buying new positions to bet on a move above $62.50 in the coming weeks.

The next most popular option is the December 57.50 call, with 11,000 contracts traded. But open interest was very high here before today, leading one to believe traders could be closing the front-month calls -- and potentially signaling that this action is connected to the aforementioned 62.50 calls, as a trader could be rolling up their position. After those two, there's a huge drop-off to third place in today's trading, with only about 1,800 contracts traded at the December 60 call.

Data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows heavy call buying in the past two weeks. That's because the 10-day call/put volume ratio of 5.64 ranks in the bullish 73rd annual percentile. Prospective buyers will want to be cautious now, however, since the 30-day at-the-money implied volatility has jumped 7.5% during today's heavy trading.

Analysts love the stock, with SunTrust Robinson just today raising its price target to $77 from $72, while Cantor Fitzgerald reiterated its positive view, mentioning 2020 Democratic Presidential Candidate Elizabeth Warren in a note where it wrote that it's unlikely Medicare For All becomes law in the U.S. anytime soon.

Still, sentiment isn't fully bullish. In fact, short interest jumped 25.3% in the last two reporting periods, and now accounts for almost 11% of the total float.