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