Hedging strategy behind DaVita trades


Shutterstock photo

DaVita drew a large hedging trade on Friday as the dialysis stock traded near an all-time high.

optionMONSTER's Depth Charge tracking system detected the purchase of 2,850 October 85 puts for $5.59, plus the sale of 4,275 October 75 puts for $1.72 and 1,000 October 95 calls for $3.10.

The transaction resulted in a net cost of about $548,000 and was almost certainly the work of an investor who already owned shares. Selling the downside puts and upside calls reduces the cost of the October 85 puts to just $1.92, which will protect against DVA falling over the next six months.

If DVA rallies to $95 or higher, the investor will be forced to sell 100,000 shares because of the upside calls. And if it drops below $75, more stock will have to bought at that price.

The trader may be willing to take that risk if he or she likes the name over the long run. That's also near a peak from late last year where some chart watchers may expect support to form.

DVA rose 0.1 percent to $87.04 on Friday and is up 25 percent so far this year. Its last earnings report on Feb. 10 was slightly ahead of expectations, and the next release is scheduled for May 3 before the bell.

The stock rallied more than 1,000 percent between 2000 and 2006, consolidated for about four years before breaking free in October.

The protective trade pushed total option volume in DVA to 17 times greater than average in Friday's session.

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

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

This article appears in: Investing , Options

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com