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Community Health attracts bulls

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Community Health Systems broke through some key levels yesterday, and traders are looking for more gains in the next month.

More than 2,100 June 42 calls were purchased for $0.70 to $0.90 yesterday, including a print of 1,477 that was bought above the ask price for $0.73, according to optionMONSTER's Heat Seeker tracking system. The volume was well above the previous open interest of 419 contracts, indicating that new positions were established.

These long calls lock in the price where the stock can be purchased for the next four weeks no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $42 through mid-June.

The hospital operator saw longer-term call buying in the December 41 strike before its last earnings report in early May . (See our Education section)

CYH gained 4.48 percent to $41.05 yesterday, the first close above its 200-day moving average since February. The stock had been trading mostly between $35 and $40 since early March.

Yesterday's total option volume in the name was 3.5 times its daily average for the last month. Overall calls outnumbered puts by 33 to 1.

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