Traders bullish in Tenet despite drop


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Tenet Healthcare plunged yesterday after saying it might acquire an Australian company, but the options activity was bullish.

In one big trade, an investor sold 5,000 August 4 puts for $0.20 and bought 5,000 August 5 calls for $0.55, resulting in a net cost of $0.35. Volume was more than five times open interest in both strikes.

THC Chart This bullish combinationt trade will mimic a long position in the shares. It will double the investor's money for every $0.35 that THC climbs over $5.35 and expose him or her to losses if it falls below $4.

The debt-laden hospital stock fell 17 percent to $4.72 yesterday after management said it began talks to acquire Healthscope, which operates 43 hospitals in Australia. Analysts questioned the benefit of the transaction, and traders seized on the opportunity to drive THC below its 200-day moving average (purple line on chart).

The selling caused the stock to drop below the $5-$6.40 range where it had been consolidating since September. Management had issued weak guidance in February and again last month, so the bears may already have been waiting for a catalyst to target the stock.

In another large bullish trade, investors snapped up more than 11,000 June 5 calls for $0.20 to $0.25. Most of the volume came in large institutional size during the final 30 minutes of trading.

Overall options volume in THC was 11 times greater than average.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Options

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