Hospital operators have rallied hard this year, and one big
investor wants to lock in profits.
optionMONSTER's Depth Charge monitoring system detected the
purchase of 3,000 May 41 puts on Tenet Healthcare for $1.07 and the
sale of an equal number of May 46 calls for $1.12.
Minutes later, a similar trade appeared in Community Health
Systems, where some 2,000 May 42 puts were bought for $1.045 and
2,000 May 47 calls sold for $0.87. There was barely any open
interest in either the THC or CYH contracts, indicating that new
positions were implemented.
Given the timing and similarity of the transactions, it appears
that a large institutional trader is opening
positions to hedge winning bets in the two stocks. The strategy
surrenders gains above a certain level in return for limiting
potential losses. (See our
section for other hedging strategies.)
The trader will be forced to sell THC for $46 if it closes above
that level on expiration, while the least that will be received is
$41. He or she also collected a credit of $0.05.
In CYH, $47 is the top of the range and $42 is the bottom. The
trader also received $0.175.
THC fell 1.16 percent to $43.52 yesterday, and CYH declined 1.94
percent to $43.91. Both surged more than 45 percent in the first
quarter but have been pulling back this month.
Total option volume was almost 7 times greater than average in CYH
and 4 times normal amounts in THC, according to the Depth Charge.
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