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Trades look for more upside in Baxter

By: optionMONSTER
Posted: 2/8/2011 1:34:00 AM
Referenced Stocks: BAX

Baxter International is trying to fight its way back from a big crash last year, and yesterday the bulls targeted more upside.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 25,000 August 55 calls on the medical-product company against open interest of just 985 contracts. Most of the trades priced over the space of a few minutes for $0.77, suggesting that they were the work of a single large investor.

BAX BAX ended the session up 0.68 percent to $48.85. It crashed last April after issuing weak earnings and guidance. The company encountered more bad news last month, when its second-quarter outlook was below forecasts and management said a facility in Puerto Rico was getting reviewed by the Food and Drug Administration.

The stock fell on that news but appears to be bouncing around the $48 level, which corresponds to a major trading session on Sept. 24, when the stock swung widely on heavy volume. Traders often look for such levels as support in subsequent weeks and months.

The company, which mostly provides blood products, had warned that last year's federal health-care legislation could hurt its profitability. While it isn't clear, one potential catalyst for yesterday's call buying could be that a federal judge declared the law unconstitutional last week. Another judge has ruled similarly while two more have upheld the statute, which will go to the Supreme Court.

Overall option volume in BAX was 6 times greater than average yesterday, with calls outnumbering puts by 12 to 1, according to the Heat Seeker.

(A version of this post appeared on InsideOptions yesterday. Chart courtesy of tradeMONSTER.)