Schaeffer's Options Center
Sponsored by:
Schaeffer's Daily Option Blog

Boston Scientific (BSX) Bulls Could Be Bracing for a Pullback

Speculators bought out-of-the-money puts on uptrending BSX

by 2/13/2013 10:35 AM
Stocks quoted in this article:

The shares of Boston Scientific Corporation (NYSE:BSX - 7.49) have rallied roughly 50% since skimming the $5 region in late October, ushered higher atop their 10-day moving average. As such, the stock's Relative Strength Index (RSI) now stands at 74 -- in overbought territory, suggesting a breather could be in the short-term cards. Against this backdrop, options traders are picking up puts to either gamble on a pullback, or lock in a profit on their BSX shares.

During the course of Tuesday's session, the medical device manufacturer saw roughly 5,800 puts cross the tape -- more than seven times the norm, and more than twice the number of BSX calls exchanged. Nearly all of the action transpired at the out-of-the-money March 7 put, which saw volume of almost 5,400 contracts. All of the puts traded at the ask price, and open interest skyrocketed overnight, confirming our theory of buy-to-open activity.

By purchasing the puts to open, the buyers have one of two motives: to profit on a significant near-term retreat, or to protect a long stock position. In the case of the former, the buyers will profit if BSX sinks below $6.93 (strike minus the volume-weighted average price of $0.07) by mid-March. In the case of the latter, their primary goal is still for BSX to extend its upward momentum. The protective puts simply lock in an acceptable price at which to unload their stock ($7 a share), should the equity take a turn for the worse.

As alluded to earlier, BSX has been on a tear, adding about 30% since the start of the year. However, the security is in danger of ending beneath the aforementioned 10-day trendline for the first time in 2013, despite a slew of bullish brokerage notes this morning. More specifically, Jefferies upped its price target to $8.30 from $7.60, Mizuho lifted its target to $7 from $6.80, and Stifel hiked its target to $9 from $8.

Daily chart of Boston Scientific (BSX) since December 2012

permalink

Featured Brokers
ADVERTISEMENT
Unusual Option Volume
Option Flow
ADVERTISEMENT
Most Active Stocks
Most Active Option Strikes
Largest Open Interest

Partner Center

© 2014 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242 Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: service@sir-inc.com

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.