Elections, Earnings Bring DaVita Option Bulls

DVA call options are hot after a key midterm vote in California

Nov 7, 2018 at 11:49 AM
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Yesterday's midterm elections have several sectors moving, and dialysis service provider DaVita Inc (NYSE:DVA) is no exception. The shares are on pace for their best day since an M&A-inspired bull gap in early December, after California's Proposition 8 was defeated. The measure would have capped the rates dialysis providers charge insured patients. As such, and ahead of DaVita earnings tonight, DVA call options are flying off the shelves today.

DVA shares were last seen 11.2% higher to trade at $76.97, eyeing their highest close since the February stock market correction. Prior to today, the stock had spent the past few months struggling to break north of the $74 region, but found support in the $66-$68 area -- where it landed after the aforementioned bull gap, and home to its 320-day moving average.

DVA stock chart nov 7

DaVita stock has moved higher the day after the company's last three earnings reports, including a 5.3% gain in August. Over the past eight quarters, the equity has moved 4.8%, on average, the day after earnings, regardless of direction. Implied volatility (IV) data indicates options are pricing in a bigger-than-usual move of 6.3% for DVA shares tomorrow.

As alluded to earlier, calls are flying off the shelves today, at 15 times the average intraday pace, with roughly 11,000 contracts traded so far -- set for an annual high. Meanwhile, just under 4,000 DVA put options have crossed the tape -- eight times the intraday average.

Most of the action has transpired at the December 72.50 and 80 calls, with symmetrical blocks of 4,000 contracts trading earlier today. At a glance, it appears one trader may have cashed in their now in-the-money 72.50-strike calls, rolling them up to the 80 strike. If so, the speculator expects DVA to topple the $80 level -- a feat not accomplished since the mid-January two-year highs -- by December options expiration.

Today's affinity for long calls merely echoes the recent trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where traders have bought to open more than eight DVA calls for every put in the past two weeks. The 10-day call/put volume ratio of 8.33 is in the 77th percentile of its annual range, suggesting options buyers have been more bullish than usual in the past two weeks.


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