Unusual Options Activity: Cardinal Health (CAH)

Shares of medical distribution company Cardinal Health (CAH) are down over the past year, and down 25 percent from their peak. One trader sees the possibility for a rebound in shares in the next few months.

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  • That’s based on the March $52.50 calls. With 104 days until expiration, over 10,570 contracts traded, a 21-fold jump in volume from the prior open interest of 502. The buyer of the calls paid $1.00 to make the trade.

    Shares last traded around $46, so shares would need to rise about 14 percent in the next few months for the call option to move in-the-money. Shares would still be well under their 52-week high near $63 per share.

    Although shares are well off their peak, the company has been growing revenue over the past year, and the firm has been profitable, with shares trading at less than 9 times forward earnings. The possibility of a rebound at this valuation is strong.

    Action to take: Investors may like shares here, as the company pays a dividend yield of 4.25 percent, and has had a slight increase in its dividend over the past year.

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  • For traders, the option contract is an inexpensive way to play a potential rebound over the next few months, and at a price around $1.00 traders could potentially double their money in a short amount of time, making for a reasonable trade relative to the risk.

     

    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.

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