Wellcare trader sees little downside

By David Russell,

Shutterstock photo

Someone apparentely thinks that Wellcare Healthcare is on solid ground despite a big move in recent months.

optionMONSTER's monitoring systems detected the sale of almost 2,100 September 60 puts for $0.85. Volume was more than twice previous open interest at the strike, indicating that new positions were initiated.

Selling puts obligates the investor to buy a stock if it's below a certain level on expiration, while letting him or her collect a credit in return. The strategy is used when they like a company but don't want to shell out cash getting long at current levels. It also reflects a belief that downside is limited. (See our Education section)

WCG rose 0.51 percent to $67.40 yesterday and is up 31 percent in the last two months. Much of that rally occurred on Aug. 7 after the health insurer reported strong quarterly results and raised guidance.

The shares peaked above $60 in April and August. That could make some chart watchers think that level will now become support, helping to explain yesterday's put sale.

Total option volume was almost 4 times greater than average in the session.

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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: WCG

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