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Option Traders Bombard Community Health Systems and HCA Holdings

Bulls appear to be taking profits on CYH, and buying calls on HCA

by 6/28/2012 12:38 PM
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Options traders are pouncing on Community Health Systems (NYSE:CYH - 27.84) and HCA Holdings Inc (NYSE:HCA - 28.86) this afternoon, with speculators seemingly taking profits and initiating new bullish bets on the soaring hospital stocks. At last check, the equities have each charged more than 2.5 points higher, thanks to the Supreme Court ruling mandating most Americans to carry health insurance.

Turning first to CYH... The stock -- which touched a new annual high of $28.79 -- has seen roughly 3,200 calls and 720 puts change hands so far, compared to its average intraday volume of about 470 calls and 60 puts. Digging deeper, most of the action has centered on the now in-the-money July 26 call, which has seen more than 1,900 contracts traded. However, 70% of the front-month calls have crossed at the bid price, pointing to potential profit-taking among the bulls.

From a broader sentiment standpoint, there are likely a lot of option bulls cheering the stock's legal-induced surge. During the past 10 sessions on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 45 CYH calls for every put. In fact, this ratio registers in the 91st percentile of its annual range, implying that traders were initiating bullish bets at a much faster-than-usual clip during the past two weeks.

Echoing that, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.25 indicates that calls quadruple puts among options expiring within three months. Plus, this ratio stands just eight percentage points from an annual low, suggesting near-term traders have rarely been more call-heavy during the past year.

Moving on... HCA was last seen 8.5% higher, in the $28.86 neighborhood. At last look, the security has seen roughly 21,000 calls and 3,400 puts exchanged, compared to its typical intraday volume of fewer than 1,000 calls and 200 puts. Most active has been the out-of-the-money September 30 call, which has seen more than 14,400 contracts traded on open interest of just 324, pointing to an influx of new positions. Plus, most of the calls traded closer to the ask price, pointing to fresh bullish bets. By purchasing the calls to open, the speculators are expecting HCA to surmount the $30 level within the next few months.

As with CYH, options traders have been establishing optimistic positions on HCA at a quicker-than-usual step. The stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 6.85 registers in the 62nd percentile of its annual range. Similarly, the equity's SOIR of 0.18 stands higher than all but 9% of comparable readings taken during the past year, indicating that short-term traders have rarely favored HCA calls over puts by a wider margin.


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