Tenet attracts range-bound strategy

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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 average level.

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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This article appears in: Investing , Options

Referenced Stocks: CYH , THC

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As of 12/19/2014, 04:15 PM


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