Traders bend time to play Natus

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Natus Medical has been rallying hard, and the bulls aren't done yet.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 1,466 July 30 calls for $2.66 and the sale of an equal number of February 22.50 puts for $1.11 on Friday. Volume as more than twice the previous open interest in each strike, indicating that new positions were initiated.

Buying calls locks in the price where shares can be purchased, while selling puts generates income but creates an obligation to purchase the stock if it falls. Combining the two strategies is highly bullish because both benefit from the stock climbing. Friday's trade cost $1.55 and provides upside for the next six months. (See our Education section)

BABY rose 0.54 percent to $24.34 and has more than doubled in the last six months. Much of that rally came after the provider of medical products for infants reported better-than-expected results and raised its guidance in October.

The unusual aspect of last week's trade is that the investor sold shorter-term puts that are closer to the money than the calls purchased. That lets the trader receive additional premium to offset the greater time value in the July contracts.

BABY's next earnings report is scheduled for Jan. 29, before the opening bell. Total option volume on Friday was 14 times greater than average in the session, according to the Heat Seeker.



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: BABY

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