3 Healthcare Stocks Seeing Accelerated Obamacare Options Trading

Healthcare stocks are in focus today, as Vice President-elect Mike Pence and President Barack Obama discuss the fate of the Affordable Care Act (ACA) with members of Congress

Jan 4, 2017 at 3:12 PM
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Healthcare stocks are in focus, as the battle over President Barack Obama's Affordable Care Act (ACA) heats up on Capitol Hill. In fact, both Vice President-elect Mike Pence and Obama are meeting with members of Congress today to discuss the ACA, with Pence saying the new administration's "first order of business is to repeal and replace Obamacare." Among healthcare stocks making moves this afternoon are hospital operators Community Health Systems (NYSE:CYH) and Tenet Healthcare Corp (NYSE:THC), as well as healthcare IT firm Cerner Corporation (NASDAQ:CERN). What's more, CYH, THC, and CERN have all seen accelerated options activity in today's trading.

CYH, for instance, is up 7% at $6.21. Nevertheless, the shares have been stuck in a tight trading range after a late-October bear gap dropped them into single-digit territory -- and are currently staring at a 46% three-month deficit. And while a stiff 27.7% of the stock's float is sold short, call buying has been picking up the pace in recent weeks.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CYH's 10-day call/put volume ratio of 24.12 ranks in the 87th annual percentile -- with most of the call action centered at the June 8 strike over the past two weeks. But while calls are trading at three times the average intraday pace today, puts are leading on an absolute basis due to potential buy-to-open activity at the January 2017 6 strike -- Community Health Systems' most active option.

THC, meanwhile, has surged 7.8% to trade at $16.60 -- paring its year-over-year decline to 42.5% -- even after Mizuho Securities reiterated its "underperform" rating and $13 price target on the stock. The shares gapped lower in a sector-wide plunge after Donald Trump unexpectedly took the presidency in early November, on their way to tagging a five-year low of $14.06 on Nov. 11. Today's pop has THC facing off with its 50-day moving average, a trendline not conquered on a daily closing basis since Oct. 25.

Call players appear to be positioning themselves for even bigger gains, too. At last check, 9,019 THC calls had changed hands -- six times what's typically seen at this point in the day, and on track to settle in the 98th annual percentile. Tenet Healthcare Corp's May 20 call is most active, with 4,317 contracts traded. It looks like speculators could be purchasing new positions here, betting on a round-number breakout over the next five months.

CERN, on the other hand, is trading down 2.8% at $48.04 -- flirting with its biggest intraday percentage drop in a month -- after UBS slashed its price target on the stock by $8 to $52. The brokerage firm said "uncertainty created around the potential ACA unwind has driven questions over near-term hospital CapEx budgets," and that "a continued moderation of the overall growth rate ... has changed the valuation dynamic for the stock." This negative price action is just more of the same for the shares, which have surrendered more than 21% in the last three months.

Amid relatively low absolute volume, puts are trading hands at three times the average intraday rate today. This marks a change of pace in CERN's options pits, per the stock's 50-day ISE/CBOE/PHLX call/put volume ratio of 1.09 -- in the elevated 77th annual percentile. Simply stated, calls have been bought to open over puts at a faster-than-usual clip in recent months. A continued shift in sentiment among options traders could translate into fresh headwinds for shares of Cerner Corporation.

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