Shares of pharmaceutical and medical device company Bausch Health Companies (BHC) have been in a steady decline over the past year. One trader sees the potential for a rebound in shares in the coming months.
That’s based on the July $32 calls. With 125 days until expiration, 6,395 contracts traded compared to a prior open interest of 182, for a 35-fold rise in volume. The buyer of the calls paid $0.38 to make the trade.
Shares last traded for about $23, so they would need to rise $9, or about 39 percent for the option to move in-the-money. Given that shares have a 52-week high of about $34.50, it would stake a strong rally in shares for the option to move higher.
The stock has lost about one-third of its value in the past year, as revenue has been flat but the company has reported an operating loss.
Action to take: Following its slide, shares now trade for about 5 times forward earnings. Investors may like shares, especially with the company looking to spin off into three separate companies, each of which may carry a higher valuation than its current combined business. However, shareholders won’t get a dividend on holdings.
For traders, the call options look like an inexpensive way to bet on a successful spinoff that could increase the total value of the business. Traders can likely nab mid double-digit gains in the months ahead if the market likes what it sees with the split.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.