Strategy looks for upside in LabCorp

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Good weather or bad, one trader likes Laboratory Corp. of America.

The diagnostic-testing company reported mixed results last week, blaming weak fourth-quarter profit on Hurricane Sandy. Revenue, however, beat estimates by a narrow margin and management said volumes have improved since then.

Yesterday's option action was dominated by a strategy designed mimic owning LH shares. Some 2,000 May 100 calls were purchased for $0.85 and an equal number of May 80 puts were sold for $0.60. Volume was more than 5 times open interest at each strike, indicating that these are new positions.

If LH rallies, the calls owned will appreciate in value and the puts sold short will dwindle; the opposite will occur if the stock falls. The advantage of the trade versus owning stock is the relatively low cost of $0.25, but it will track the shares less closely over time and become worthless if they remain between $80 and $100 on expiration. (See our Education section)

LH fell 0.72 percent to $89.41 yesterday. The bullish combination strategy pushed total option volume to almost 5 times greater than average in the session.




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: LH

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