options trading Follow

Walgreen Co. (WAG) – The second-largest drugstore chain in the U.S. exceeded analysts’ expectations by posting fourth-quarter profits of 44 cents per share. Shares burst through the 52-week high on the stock of $34.81 this morning, rising 10.5% to $37.83. Option traders took to the October contract to initiate bullish stances. Call-buyers targeted the October 38 strike where nearly 2,000 contracts were picked up for an average premium of 92 cents apiece. We observed other WAG optimists selling puts short 6,000 times at the October 35 strike for approximately 8 pennies each. Put-sellers retain the 8 cents as long as shares of the drugstore chain remain higher than $35.00 through expiration next month. Finally, plain-vanilla put purchases took place at the October 37 strike 1,000 times for a premium of 53 cents per contract. Perhaps these investors are locking in gains in case shares erode beneath the breakeven point at $36.47 by expiration day. Option implied volatility imploded 36% following earnings, descending from yesterday’s closing value of 31% to an intraday low of 23%. CVS Caremark Corp. (CVS) – Shares of the largest drugstore chain in the U.S. rose 3% during the session to $35.88. Perhaps the bullish move in the stock was partially fueled by Walgreen’s positive fourth-quarter earnings news. News this morning also revealed CVS aims to expand its partnership with Microsoft HealthVault to CVS Pharmacy clients. Apparently, the partnership will allow CVS Pharmacy users to download prescription histories in order to obtain Microsoft HealthVault records. We noticed heavy call volume at the October 36 strike, and initially assumed the contracts must have been bought by bullish investors. However, upon further inspection, the calls appear to have been sold nearly 12,000 times for an average premium of 80 cents apiece. Perhaps the short calls are held by an investor holding a long position in the stock. If this is the case, the trader is covered in the event that shares of CVS continue through $36.00 by expiration. We note that earlier in the trading session the calls were in-the-money briefly when shares of CVS traded 3.5% higher to $36.12. Complete Story »