Cigna Scores Bull Note; Options Traders Pile On

Analyst: The market doesn't appreciate Cigna's Express Scripts deal

Managing Editor
Sep 17, 2018 at 2:09 PM
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The shares of Cigna Corporation (NYSE:CI) are up 1.9% to trade at $198.37 today, after Cowen initiated coverage on the healthcare insurer with an "outperform" rating and $240 price target. The analyst in coverage believes Cigna's recent deal for Express Scripts (ESRX) is underappreciated by the market. In response to the bullish rating, options traders are flocking to CI calls today.

More specifically, over 22,000 calls have been traded -- 13 times what's typically seen at this point in the day, with volume pacing for an annual high. Most active is the January 2019 220-strike call, where over 16,000 contracts have changed hands, and it appears that new positions are being opened. Digging deeper, it appears most of the action is attributable to one buyer expecting CI stock to top $220 by January 2019 options expiration.

This bullish bias has been a trend for at least the past two weeks, despite relatively light absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 10-day call/put volume ratio of 2.60, which ranks in the elevated 73rd annual percentile, indicating the rate of call buying relative to put buying is hovering near extreme levels.

The good news for Cigna options buyers is that near-term options are attractively priced right now, from a volatility perspective. This is based on CI's Schaeffer's Volatility Index (SVI) of 19%, which arrives in the 14th percentile of its annual range.

On the charts, Cigna stock is trading at its highest point since February, and is fresh off its third straight weekly win. CI suffered an early March bear gap when news of the merger with Express first broke, sending the security to an annual low of $163.02. Since then, however, the shares have rallied 22%, with recent pullbacks contained by their 50-day moving average. 

Daily Stock Chart CI

 

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