Bearish strategy in Boston Scientific

By David Russell,

Shutterstock photo

Boston Scientific has been sick for years, and one investor apparently thinks that the condition might be terminal.

optionMONSTER's Depth Charge tracking system detected the purchase of 1,000 May 5 puts on the medical-device company for $0.21. An equal number of May 6 calls were sold at the same time for $0.27, resulting in a net credit of $0.06.

The position is leveraged to downside in the share price, making money on a drop below $5. It also faces potential losses over $6 because of the short calls, which will force selling in the stock goes above that level. (See our Education section)

BSX rose 2.69 percent to $5.73 on Monday. It peaked above $45 in 2004 before steadily falling to around $5 two years ago.

The shares have held their ground since then, while continuing to make lower highs. That could make some chart watchers nervous that the stock will break long-term support and probe new depths. 

The option trade may have been the work of an investor who owns the stock and wants to protect that position by using a strategy known as a collar .

Some 5,000 contracts traded in the session, according to the Depth Charge. That was more than triple the daily average.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: BSX

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