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Put spread used as hedge in Cerner

David Russell (david.russell@optionmonster.com)

Cerner has been going straight up for years, but one investor is worried about a pullback.

optionMONSTER's Depth Charge tracking program detected the purchase of about 3,900 September 85 puts for $4.36 and the sale of an equal number of September 75 puts for $1.71 on Friday. Volume was more than more than 7 times the previous open interest at each strike, clearly showing that this is new activity.

Known as a vertical spread , the trade cost $2.65 and will earn a maximum profit of 277 percent if the stock closes at or below $75 on expiration. The investor is probably using the spread to protect a long position in the company, which provides IT services to the health-care industry. (See our Education section for other risk-management techniques.)

CERN rose 0.66 percent to $91.80 on Friday. It has more than doubled since late 2010, fueled by strong earnings and a need for greater efficiency in the medical industry. The company's next earnings report is scheduled for after the bell this Thursday, and the trader apparently wanted a hedge before the news.

Total option volume was 7 times greater than average in the session, with puts outnumbering calls by 18 to 1.

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