Protective trade on Community Health

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Community Health Services has been climbing on strong earnings, and one investor is buying protection as the hospital stock challenges long-term resistance.

optionMONSTER's Depth Charge tracking program detected the purchase of 2,500 March 41 puts for $0.55. An equal number of March 38 puts was sold at the same time for $0.05, but volume was below open interest.

That suggests an existing position in the March 38s was closed and rolled to the higher strike. As a result, the investor paid $0.50 for an additional $3 of downside protection.

The trade may have also been a new vertical put spread, a bearish strategy that would earn a maximum profit of 500 percent if CYH closes at or below $38 on expiration.

The shares fell 1.78 percent to $41.35 yesterday but have gained 18 percent since the end of January. The company's last earnings report on Feb. 24 beat the consensus estimate, and guidance was at the high end of forecasts.

CYH is pushing against the same $42 level that has been resistance for the last four years. It is also trying to buy rival Tenet Healthcare, which could potentially result in a higher bid. Both of those factors could make investors nervous about a drop.

Overall option volume in the name was 7 times greater than average in the session, with puts outnumbering calls by 52 to 1.



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.

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


This article appears in: Investing , Options

Referenced Stocks: CYH , THC

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As of 11/28/2014, 01:06 PM

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