Bullish call action in Quest Diagnostics (NYSE: DGX)

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Shares of diagnostic testing company Quest Diagnostics Ltd. (NYSE: DGX ) climbed nearly 3% today to $59.87. The company has confirmed it will release quarterly earnings results on Wednesday prior to the open. At least one investor on Monday expressed a bullish view by buying calls looking for a potential bump in the stock.

Looking at the May 65 calls, we find that more than 9,000 contracts traded on the day. Open interest in these calls was 5,353 contracts at the start of the day. What is most noteworthy about this volume is that most of the activity is on the buy side, meaning there are more buyers of these calls than sellers. The buying is understandable for two reasons. The first is that in the May options, the investor will own the options at the time that earnings are announced Wednesday. But a second catalyst for the buying could be the fact that rumors have been making the rounds that DGX could be a potential acquisition target. The name that made the rounds as the possible suitor was Merck & Co. Inc. (NYSE: MRK ) .

The May 65 call options traded for the majority of the day for approximately 45 cents per contract. At that price, the buyer just needs the stock to be above $65.45 to be in the money at expiration, unless the calls rally prior to expiration, in which case the investor could elect to sell out the calls and lock in profits. For example, the calls finished the day at 55 cents, so the investor is already up a tidy 22% on their $400,000 investment.

For a visual of the risk/reward dynamics of this long call strategy, open a free virtual trading account and gain access to tools essential to your stock and option portfolios. For more guidance on DGX trades, follow ONN's free premium trading alert service in which Kevin Cook, Jared Levy and I manage an options portfolio.



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



This article appears in: Investing , Options

Referenced Stocks: DGX , MRK

Jud Pyle

Jud Pyle

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