Aetna Buyout Buzz Sparks Heavy CVS Stock Options Trading

CVS options traders think the stock will bounce back

Dec 4, 2017 at 12:08 PM
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Options traders are blasting CVS Health Corp (NYSE:CVS), on news the drugstore chain has put in a $69 billion bid for insurance giant Aetna (AET) -- in a move that will "transform healthcare," according to Leerink. At last check, 28,067 calls and 18,179 puts had traded on CVS stock -- six times what's typically seen, and total options volume pacing in the 100th annual percentile.

Most active is the January 2018 75-strike call, where 22,162 contracts have changed hands. It looks like the bulk of the activity here is of the buy-to-open kind, as options traders bet on CVS breaking back above $75 by January options expiration. Delta on this call was last seen at 0.34, suggesting a 34% chance the call will be in the money at expiration.

Widening the sentiment scope reveals long puts have actually been gaining in popularity on CVS in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 12,202 puts in the last 10 sessions, compared to 6,897 calls. The resultant put/call volume ratio of 1.77 ranks higher than 89% of all comparable readings taken in the past year, pointing to an unusual bearish bias among options traders.

Drilling down, the December 70 put has seen the biggest rise in open interest over this time frame, with 6,284 contracts added. Data from the major options exchanges confirms mostly buy-to-open action here, indicating traders have been bracing for a retreat.

At last check, CVS Health shares were down 5.5% to trade at $71, even after Deutsche Bank initiated coverage on the stock with an upbeat "buy" rating and $90 price target. The equity popped more than 4% last Thursday as speculation swirled over a potential Aetna merger swirled, though the rally was quickly contained by the 200-day moving average -- a trendline that contained breakout attempts in July and August. Today's "sell the news" reaction has CVS down 7.8% from its Nov. 30 peak and 9% lower on the year.


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