MHS – Medco Health Solutions Inc. – Contrarians are dominating options trading on Medco Health Solutions today, initiating bullish positions on the stock even though the healthcare company’s shares declined as much as 10.4% this morning to touch down at an intraday and new 52-week low of $47.76. Medco’s shares are currently down a lesser 6.8% to stand at $49.70 as of 12:00 pm (ET). Medco posted second-quarter earnings of $0.83 a share, beating the average analyst forecast of $0.79 a share, before today’s opening bell. Investors expecting Medco’s shares to rebound ahead of August expiration picked up 1,100 calls at the August $50 strike for an average premium of $1.40 apiece. Call buyers at this strike make money if, by expiration, the price of the underlying stock rallies 3.4% over the current price of $49.70 to surpass the effective breakeven point at $51.40. Bullish behavior spread to the higher August $55 strike where traders purchased roughly 1,900 calls for an average premium of $0.32 a-pop. Traders are prepared to profit should the healthcare firm’s shares surge 11.3% to exceed the average breakeven price of $55.32 by August expiration day. Medco’s shares last traded above $55.32 on July 21, 2010.
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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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