Long-term bet on Humana recovery

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Humana has been drifting lower since mid-January, and now one investor is positioning for the shares to rally into early 2011.

optionMONSTER's Heat Seeker tracking system detected two similar bullish trades on the health insurance stock. In the first, an investor bought 1,500 January 55 calls for $2.05 and sold a matching number of January 40 puts for $3.10.

HUM Chart About 15 minutes later, some 2,500 January 50 calls were bought for $3.50--also against the January 40 puts. The first transaction produced a credit of $1.05 and the second cost a debit of $0.40.

HUM rose 1.14 percent to $45.17 yesterday but is down 12 percent in the last three months. Earnings matched forecasts the last time it reported results on Feb. 1, and management provided bullish guidance. The company, which has also been cutting jobs, will issue its next earnings report in the pre-market on April 26.

The option trades, known as combination strategies, resemble ownership in the stock. The larger transaction will double the investor's money for every $0.40 that HUM closes above $50.40 on expiration, and the second trade will make money anywhere over $55.

The positions will expire worthless if the stock fails to reach those levels and will generate losses below $40. The activity pushed overall options volume in HUM to five 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 The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: HUM

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