WellCare rally brings out bears

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WellCare Health Plans has rallied, but now traders are bracing for a pullback.


optionMONSTER's Depth Charge monitoring program detected the purchase of 1,000 September 75 puts for $4.60 and the sale of an equal number of September 65 puts for $1.15. Volume was more than 20 times previous open interest in each strike, which indicates that new positions were initiated.

Known as a bearish put spread , the strategy will return $10 if the health insurer closes at $65 or lower on expiration. That would represent profit of 190 percent based on its $3.45 entry cost. (See our Education section for more on the leveraging power of options.)
(See our Education section)

WCG fell 0.13 percent to $76.72 yesterday but is up 21 percent in the last two months. It's been running on the heels of a strong earnings report on May 6, when management cited growth in its Medicaid plans and productivity gains. Given those gains, yesterday's trader may now be looking for a pullback.

Total option volume was 5 times greater than average in the session, according to the Depth Charge. Puts outnumbered calls by a bearish 7-to-1 ratio.



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: WCG

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