Cigna reports earnings in two weeks, and one trader is looking
for volatility to ramp up into the release.
optionMONSTER's tracking systems detected the purchase of 5,000
January 33 calls for $2.40 against open interest of 107 contracts.
A large block of shares was sold at about the same time, indicating
the use of a so-called delta-neutral trade.
Carrying a short position in the equity at the same time the calls
are owned isolates the option, or volatility, component in the
contracts. That allows the investor to make money if implied
volatility increases while eliminating exposure to the stock moving
up or down.
CI fell 0.45 percent to $31.11 in midday trading and is down 12
percent in the last month. The heath insurer beat forecasts the
last time it reported earnings on May 6 and reaffirmed its
Larger rival UnitedHealth beat expectations by a wide margin
yesterday and raised its full-year guidance.
With CI's announcement scheduled for the pre-market on Aug. 5,
today's trader apparently thinks that it's time to bet on a move.
Implied volatility in the name has been climbing recently after
bottoming around a 32 percent in April--its lowest level since
shortly before the 2008 market panic.
The option trade will profit if premiums rise into the announcement
or if the shares make a big move after the results come out. If he
or she is wrong, the trade doesn't stand to lose much because the
contracts don't expire until January. That means it's susceptible
to minimal time decay in the next few weeks.
Overall option volume in CI is about six times greater than average
so far today, according to our tracking systems.
(Chart courtesy of tradeMONSTER)
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