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Cigna Option Players See Additional Upside

CI's November 55-strike call was in favor on Monday

by 10/9/2012 10:45 AM
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Option players have been furiously scooping up calls on CIGNA Corporation (NYSE:CI - 49.15) at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past two weeks. The stock's 10-day call/put volume ratio stands at 114.59, compared to its 50-day call/put ratio of 6.99. Plus, this shorter-term volume ratio ranks in the 97th percentile of its annual range, indicating calls have been bought to open over puts at a near annual-high clip in recent weeks.

Calls were easily the options of choice in yesterday's session, where more than 7,900 call contracts crossed the tape. By comparison, fewer than 400 put contracts changed hands. Nearly all of Monday's call volume traded at the November 55 strike. With the majority of contracts crossing at the ask price, and open interest rising by 7,432 contracts overnight, it's safe to assume new bullish positions were being initiated here yesterday.

By buying these calls to open, speculators will profit with each step north of $55.20 (the strike plus the volume-weighted average price of $0.20) CI makes through November expiration. This breakeven mark represents a 12.3% premium to the stock's current price. Should the equity fail to topple this mark over the next six weeks, the most the traders have to lose is $0.20 per contract.

Technically, the equity has added a solid 26% since hitting its annual low of $39.01 on July 27. Highlighting this impressive price action has been CI's 10- and 20-day moving averages, which have ushered the stock higher since early August. Additionally, CI has posted a 2% gain since David Einhorn waxed optimistic about the stock's longer-term potential last Tuesday, calling Cigna his "favorite" healthcare company.

Going forward, CI is scheduled to unveil its third-quarter earnings results on Thursday, Nov. 1. Wall Street is calling for a per-share profit of $1.35.

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