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.
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
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
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