Tenet Healthcare is basing out after a big decline, and one trader apparently thinks that the bottom is in.
optionMONSTER's tracking programs detected the sale of 4,322 December 4 puts for $0.10 against open interest of 825 contracts. The trades appeared after the hospital stock held support above $4, marking its third higher low since early September. The put seller will get to keep their credit as long as THC remains above $4 through expiration.
Tenet fell 1.66 percent to $4.14 yesterday and has been grinding sideways since July. It had traded over $6 in late 2009 and early 2010 but fell sharply in May and June.
Earlier in the session, about 2,000 January 4 calls were sold for $0.35. Some of the sales occurred when the stock rallied back from its low, so they may have been tied to share purchases.
For instance, investors could have paid $4.09 for the stock and sold the calls, resulting in a cost basis of $3.74. As long as THC remains above $4 by expiration, they would make about 7 percent profit from such a trade.
The sales of both puts and calls reflect a belief that the stock has only limited potential to move. Its implied volatility, a measure of option pricing, has remained trapped at about 46 percent since October while real volatility has plunged toward 31 percent. This suggests that its options are overpriced, which explains yesterday's activity.
Overall option volume in THC was 14 times greater than average in the session.
(Chart courtesy of tradeMONSTER)
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