BAX – Baxter International, Inc. – Medical supplies manufacturer, Baxter International, Inc., received a long-term vote of confidence by one bullish options investor today despite the 0.70% decline in the price of its shares to $40.70. It looks like the optimistic individual purchased a plain-vanilla debit call spread, buying 10,000 calls at the January 2011 $45 strike for a premium of $2.15 each, and selling 10,000 calls at the higher January 2011 $50 strike for $0.90 apiece, in order to position for a sharp rally in Baxter’s shares by expiration. The net cost of the bullish transaction amounts to $1.25 per contract. Thus, the investor responsible for the trade is prepared to make money as long as BAX shares surge 13.6% to surpass the effective breakeven price of $46.25 by January 2011 expiration day. Maximum potential profits of $3.75 per contract, for total gains of $3.750 million, are available to the call spreader should Baxter’s shares jump 22.85% to exceed $50.00 by expiration next year. The medical supplies maker’s shares last traded above $50.00 back on April 23, 2010, when the stock touched an intraday high of $51.56.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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