CNO Financial has been grinding higher for months, and one investor is looking for more upside.
optionMONSTER's Heat Seeker tracking system detected the purchase of about 8,200 April 6 calls for $1.20. Volume was more than 4 times open interest in the strike.
CNO rose 0.42 percent to $7.11 in afternoon trading. It's up 29 percent in the last six months, fueled by strong financials and low valuations.
It gapped higher after earnings and revenue beat forecasts on Feb. 22 and earlier this month proceeded to climb as high as $7.47-- its highest price since September 2008. Since then it pulled back to its 50-day moving average (red line on chart) and has started inching higher once again.
Today's call buyer used in-the-money contracts, a strategy that lets him or her enjoy significant leverage from continued upside. The activity is consistent with other trades we have observed in the stock over the last year, including a highly profitable one in January.
The delta on the calls was 0.89, meaning that they will earn $0.89 if CNO rises $1. So, if the stock climbs 12 percent to $8, they will make over 60 percent. If it remains little changed, they will be able to buy the shares for a net cost of $7.20 -- translating into a loss of just $0.09. Their main risk is to the downside because their entire position will become worthless if CNO falls below $6.
Overall options volume in the name is 19 times greater than average so far today, according to Heat seeker. Calls outnumber puts by a bullish 197-to-1 ratio.
(Chart courtesy of tradeMONSTER)
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