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Cardinal Health Sees a Bounty of Put-Selling Activity

Investors aim to profit by selling CAH's April puts

by 4/10/2012 10:37 AM
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Put players honed in on Cardinal Health (CAH - 41.46) yesterday, as nearly 2,700 of these options changed hands, which was eight times above the norm. Close to 2,500 puts were traded at the near-the-money April 42 strike -- the majority of them at the bid price, pointing to seller-driven activity. This strike saw an overnight rise in open interest of 1,198 contracts, indicating that a large portion of the volume consisted of newly opened positions. This option now holds peak put open interest of 1,583 contracts. In order for speculators to make a profit from these sold-to-open puts, the stock must surmount the $42 level by the time April-dated options expire.

This preference for puts over calls runs counter to the healthcare issue's current trend. CAH sports a Schaeffer's put/call open interest ratio (SOIR) of 0.47, signaling that calls more than double puts among options scheduled to expire in three months. This ratio ranks in the 28th percentile of its annual range, which means that near-term options players have been more bullishly aligned toward the stock just 28% of the time during the last 12 months.

Elsewhere, short interest on CAH surged by about 22% over the past month, suggesting that some of the recent call activity could be linked to short sellers seeking to hedge their bets. However, the equity's bearish camp is far from crowded, as these shorted shares make up a meager 1% of the stock's float.

From a technical perspective, CAH has lagged the broader S&P 500 Index (SPX) by over 7% during the last 60 sessions. A look at the charts shows that the stock is currently pinned beneath resistance at its 50-week moving average -- a trendline it has surmounted only twice, on a weekly closing basis, since mid-November.

At last check, CAH is off about 0.4% to trade at $41.46. Earlier this morning, the company announced the appointment of former Johnson & Johnson executive Donald M. Casey, Jr. as the new CEO of its medical segment.


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