HSP – Hospira, Inc. – The sharp pullback in the price of Hospira’s shares today attracted the attention of contrarian options investors who appear to be initiating bullish stances on the stock in order to reel in profits should the price of the underlying stock rebound by September expiration. Shares of the pharmaceuticals firm declined as much as 9.7% this morning to secure an intraday low of $51.30 following the release of its second-quarter earnings report. HSP posted net income, excluding one-time items, of $0.86 a share, which beat average analyst expectations of $0.79 a share. However, the firm did not change its 2010 earnings forecast and the price of its shares plunged on concerns performance could be weaker in the second half of the year. Hospira’s shares are currently down 7.00% to stand at $52.83 as of 11:50 am ET. Contrarians refusing to buy into the pessimism just yet opted instead to buy call options in the September contract. Investors hoping to see shares rally in the next couple of months purchased approximately 2,500 calls at the September $55 strike for an average premium of $1.25 per contract. Call buyers are positioned to profit should Hospira’s shares surge 6.5% over the current price of $52.83 to surpass the average breakeven point to the upside at $56.25 by expiration day. We note that HSP’s shares were trading as high as $58.45 yesterday.
Affiliation: Interactive Brokers
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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