Calendar spread is at work in Baxter

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One investor wants to turn time into money with Baxter.

optionMONSTER's tracking systems detected the sale of 3,000 June 52.50 puts for $0.98 and the purchase of an equal number of November 52.50 puts for $3.20. Volume was more than twice open interest at both strikes.

Known as a calendar spread , the trade cost $2.22. Given the different expiration months, the June puts sold short will lose value more quickly than the November contracts and cause the value of the position to increase.

The trade will perform best if BAX stays in its current range for the next five weeks. If the stock closes below $52.50 on June 15, the investor will lose the $2.22 initial outlay. Unlike most other market-neutral strategies, calendar spreads are opened at a debit rather than a credit. (See our Education section)

BAX is down 0.21 percent to $53.33 today. The stock gapped lower on April 16 after the Food and Drug Administration demanded more data on the company's HyQ blood product and has been staggering since. It reported strong quarterly results three days later.

Given the sharp drop and the mixed news flow, some traders may now expect the shares to trade in a range, which would explain the calendar spread.

Overall option volume is twice the average amount so far today.



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.

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


This article appears in: Investing , Options

Referenced Stocks: BAX

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