Trader sees Covidien facing slow slog

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Covidien is contending with long-term resistance, and one investor apparently thinks that its advance will be slow.

optionMONSTER's tracking systems detected the sale of 9,702 January 60 calls, most of which priced for $1.35. Volume was more than 300 times open interest in the strike.

COV rose 1.07 percent to $54.01 in morning trading. The maker of medical devices is up about 50 percent since the end of last summer, fueled by strong financials and growing customer demand. Its last earnings report on April 21 beat estimates on the top and bottom lines, and management raised full-year guidance.

Nonetheless, the shares topped out at an all-time high of $57.65 last month, slightly above their previous high around $57 in September 2008. Some chart watchers may expect this level to hold COV in check for some time into the future, which explains the call selling.

The trade compels the investor to sell shares for $60 if it pushes above that level. It was probably the work of a long-term shareholder who wants to earn income on an existing position in the equity. Known as a covered call, it's one of the most popular option strategies. (See our Education section)

The transaction pushed total options volume in COV to almost 6 times greater than average so far today.



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: COV

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