Why trader sees HCA stuck in range

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One big investor thinks that the fireworks are done in HCA Holdings.

optionMONSTER's tracking systems detected the sale of 10,000 June 29 puts for $2.55 and 10,000 June 29 calls for $2.70. There was barely any open interest in either strike before the activity appeared, so this is a new position.

Known as a short straddle , the trade generated a credit of $5.25, which the investor will keep if HCA closes at $29 on expiration. The gains will erode on either side of that level, turning to losses below $23.75 and above $34.25.

HCA rose 1.48 percent to $28.82 yesterday and is up 29 percent in the last month. The hospital operator was the target of bullish call buying on Jan. 13 that was followed by a steady push higher in the next few weeks, and those contracts have more than doubled in value.

The most recent pop came on Monday, when the company reported better-than-expected fourth-quarter earnings and announced a $2 special dividend.

Given that it has already made a big move, some traders may think that HCA will now shuffle sideways as its gains are consolidated. (See our Education section for more on market-neutral strategies that make money from the passage of time rather than a directional move.)

The short straddle pushed overall option volume in the name to 9 times greater than average in yesterday's session.



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: HCA

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