Markets

Trade alert on CVS upside buying

A few weeks ahead of CVS Caremark Corp.'s (NYSE: CVS ) earnings announcement, one investor chose to boost call volume to place a bet on longer-term upside. The February 2011 35-strike calls were active out of the gate due to buying action.

At roughly 9:45 a.m. EST, 8,300 contracts of these out-of-the-money (OTM) calls changed hands for $1 per contract. This price was closer to or at the ask when the blocks crossed the tape. Current open interest in this line is 33 contracts. Investors who bought these OTM calls to open will make money if the CVS shares are trading higher than $36 at February 2011 options expiration. This long call position could theoretically turn unlimited profits if the stock continues to soar higher than the breakeven price.

A long call position is similar to a long stock position, but limits risk to the downside. In the event that the stock does not rally at least 13% and stays below the strike price, the investor caps maximum losses at the premium paid per contract in this strategy.

CVS shares gained five cents to $30 during morning trading without any notable news on the company. The stock has bounced off a correction low of $28.30. CVS is due to announce earnings figures on Aug. 4 before the market opens and analysts estimate earnings of 68 cents per share.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

CVS

Other Topics

Options