CVS Call Options Double in 24 Hours on Aetna-Related Gap

CVS call traders banked a huge profit in just one trading day

Managing Editor
Sep 5, 2019 at 3:10 PM
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Subscribers to Schaeffer's Weekly Options Countdown options recommendation service just scored a major profit on the CVS Health Corp (NYSE:CVS) weekly 9/6 59.50-strike call. Below, we'll explain why we expected a leg up for CVS shares, and how the winning options trade unfolded.

When we recommended the trade to subscribers on Sunday, Sept. 1, CVS had made a bullish U-turn after basing for five months. The shares were trading north of their 200-day moving average -- a former ceiling for the stock -- and had found potential support at their 20-day trendline and the round-number $60 level, too. Off the charts, CVS reported strong earnings in August, and hiked its full-year earnings forecast.

The stock also sported a Schaeffer's Volatility Index (SVI) of 23%, which registered in the low 12th percentile of its annual range. This meant that near-term options premiums were pricing in unusually low volatility expectations for the pharmacy stock. Likewise, CVS had a Schaeffer's Volatility Scorecard (SVS) of 84 (out of a possible 100), meaning the security had handily exceeded options traders' volatility expectations during the past year.

When we entered the trade on Tuesday, Sept. 3, CVS closed lower on the day, but managed to hold above critical support at its 200-day moving average despite a broadly bearish session for the U.S. equities market. Then, on Wednesday, Sept. 4, the stock gapped higher out of the gate on overnight news that a federal judge cleared some lingering antitrust red tape from last year's purchase of insurance name Aetna by CVS.

The well-received regulatory news sent CVS shares popping right out of the gate on Wednesday, and our recommended weekly 9/6 59.50-strike call gained in value as well. After trading at a volume-weighted average price (VWAP) of $1.12 on Tuesday, the contract's VWAP shot up to $2.05 by the end of the day Wednesday.

As a result, our trade achieved its target profit of 100% right after the trading session started on Wednesday -- just about 24 hours after the trade was initiated, and during a period of time where CVS stock rose only 1.2%, from Tuesday's opening price to Wednesday's opening gap.

Daily CVS with entry exit dates



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