Leveraged trade bets on St. Jude


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St. Jude Medical is challenging long-term resistance, and one investor is looking for the medical-device stock to break out.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 3,500 February 45 calls for $0.40 and the sale of a matching number of February 40 puts for $0.50. Volume was above open interest in both strikes.

STJ The trade resulted in a net credit of $0.10 and will earn infinite profits if STJ closes above $45 on expiration. It will lose money below $40 and expire worthless between those levels. The company will release earnings before the bell on Jan. 26, so today's investor is apparently betting on a rally around the news.

STJ is flat on the day at $42.05 in morning trading. The current price is the same level where it traded in October 2008 immediately before the market collapsed (red line and arrow on chart). It has pushed against this range three times since then while making higher lows, a pattern some chart watchers may consider a bullish triangle.

The company said earlier this month that its fourth-quarter results would be at the high end of its previously forecast range. It's also been buying back stock, carrying out acquisitions and appears to be attractively valued with a forward price/earnings ratio of about 13 times.

The bullish trade, known as a combination strategy, pushed total option volume in STJ to about 7 times greater than average.

(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 Nasdaq, Inc.

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This article appears in: Investing , Options

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