Health care stocks have been on the sickbed for months, and one
trader is positioning for a trip to the emergency room.
optionMONSTER's Depth Charge tracking system detected a highly
bearish transaction on the Health Care SPDR (
) exchange-traded fund, which yesterday fell to its lowest price
since last August. The ETF holds positions in companies including
Johnson & Johnson, Pfizer, and Merck.
The investor purchased 6,000 August 28 puts for $0.89 and $0.90 and
sold an equal number of August 28 calls for about $1. The
transaction resulted in a credit of about $0.10 and will deliver
leveraged profits if XLV falls below $27.90. It will lose money on
a move above $28.10.
XLV slipped 0.07 percent to $27.94 in afternoon trading and is down
13 percent in the last three months. The fund started falling
before the rest of the market in March but has started
outperforming the S&P 500 since early June.
Today's option trade may have been implemented by an investor who
owns XLV and is looking to establish an exit price while hedging
against further downside. Using the strategy will prevent him or
her from benefiting if the ETF rebounds before expiration.
Overall options volume in XLV is more than twice the average level
so far today.
(Chart courtesy of tradeMONSTER)