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Why trader is selling puts in WellCare

Mike Yamamoto (mike.yamamoto@optionmonster.com)

One trader is betting on a floor in shares of WellCare Health Plans, which has been range-bound in recent weeks.

optionMONSTER's tracking systems show that 2,500 September 45 puts were sold in one print for $1.15 on Friday. The volume was more than 10 times higher than the strike's previous open interest of just 234 contracts, so this is clearly a new position.

The put seller will keep the $1.15 credit as profit if WCG closes above the $45 strike price at expiration in mid-September. If the stock is below that level, the trader will be on the hook to buy shares at an effective price of $43.85 when the credit from the put sale is factored in. (See our Education section)

WCG rose 0.97 percent on Friday to close at $53.11. The health-care services provider had rallied along with other names in the sector leading up to a government decision on Medicare reimbursement rates, spiking above $64 on April 2.

Shares then declined but appear to have found support at the $51 level, with overhead resistance at their 200-day moving average. The stock has not traded below $45 since mid-January, when it reached a 52-week low of $44.75.

Total option volume in the name on Friday was 11 times its daily average for the last month.

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