Bulls target Covidien before earnings

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Covidien has been falling for months, and now the bulls are stepping in a few days before the company reports earnings results.

COV Chart optionMONSTER's Heat Seeker tracking system detected the purchase of more than 3,500 August 37.50 calls for $2.60 to $2.85 against open interest of just 19 contracts. The transaction dominated activity in the medical supplier and pushed total option volume in the name to nine times greater than average.

COV fell 0.78 percent to $39.67 in morning trading and is down 19 percent in the last three months. The stock began falling after its last earnings report on April 21, when management issued disappointing revenue guidance.
 
It moved straight down throughout May but started leveling off in June. Since then shares have found support around $40--a level where the stock had gapped higher last September.

COV's next earnings release is scheduled for before the bell on July 29, and traders apparently think that it's time to position for potential upside. The shares need to climb less than 3 percent for the calls purchased today to turn a profit.

By using in-the-money contracts, today's traders reduced the amount of money they will lose to time decay if COV fails to rally over the next four weeks. For instance, the August 40 calls cost about $1.10, and will be worthless if the shares close under $40 on expiration. (See our Education section)

(Chart courtesy of tradeMONSTER)



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.

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This article appears in: Investing , Options

Referenced Stocks: COV

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