Tenet Healthcare had a jarring drop recently, and now one
investor apparently thinks that it's settled into a range.
optionMONSTER's tracking systems detected the sale of 5,000
November 6 puts for $0.35 and 5,000 November 7 calls for $0.55 on
Thursday, resulting in a credit of $0.90. The trader will get to
keep that money if the hospital stock remains between those two
levels on expiration.
The gains will erode outside that range, but the position will
avoid losses if THC stays between $5.10 and $7.90. Known as a short
strangle, the strategy is an example of a market-neutral trade that
profits from a stock remaining little-changed rather than moving.
(See our Education section)
THC rose 0.89 percent to $6.77 on Thursday in the midst of a
takeover war that began on Dec. 9 when Community Health Systems
made an unexpected hostile bid of $6 a share.
THC gapped higher on that news and stayed above the offer price as
investors speculated the deal would have to be sweetened.
Management has resisted, and last week took the gloves off by suing
CYH in an attempt to stymie the deal. Both stocks fell sharply on
that news, and CYH is asking for the lawsuit to be thrown out.
Given the possibility of a drawn-out legal battle, today's strangle
seller may expect THC to drift sideways far into the future. The
trade pushed overall options volume in the stock to about twice the
Tenet is scheduled to report earnings results on May 3.
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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