St. Jude Medical is back to a long-term low, and the bulls are going to work.
optionMONSTER's Heat Seeker tracking program detected the purchase of 1,500 January 2013 40 calls for $2.20 and the sale of 3,000 January 2013 22.50 puts for $1.20. Volume was more than 17 times open interest in both strikes.
The trade, which resulted in a small credit, is betting that the maker of medical devices will rebound over the course of 2012. If it does, the puts sold short will lose value and the long calls will appreciate. If it drops, however, the opposite will happen and the investor will lose money. (See our Education section)
Nonetheless, the position is less straightforward than simply owning shares because it will track the stock less closely as time progresses . And it will expire worthless if STJ remains between $22.50 and $40.
Shares are off 0.64 percent to $32.74 this afternoon and have lost more than 30 percent in the last six months. The stock is attempting to bottom out after hitting a two-year low of $32.76 on Friday.
Today's bullish option trade pushed overall contract volume in STJ to 8 times greater than average so far today, according to the Heat Seeker.
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