Unusual Options Activity: CVS Health Corporation (CVS)

Shares of drugstore chain CVS Health Corporation (CVS) hit an all-time high in May, dipped, and have finally broken through to new highs. One trader sees that breakthrough continuing in the short run.

  • Special: This Company’s Share Price has Increased 1650% Since 2016
  • That’s based on the November 12 $100 calls. With 8 days until expiration, over 34,095 contracts traded, a staggering 181-fold jump in volume from the prior open interest of 188. The buyer of the calls paid $0.33.

    With shares of the company around $91, they would need to rise nearly 9 percent for the option to close in-the-money, a somewhat steep move relative to the volatility in shares.

    Even with shares making a round-trip to its May highs, the stock is up 52 percent over the past year, and earnings growth has been reasonable for the big chain, up 11 percent in the past year.

    Action to take: Investors may like shares even at current prices. The company trades at 11 times forward earnings, and shares yield 2.2 percent. However, the dividend hasn’t been increased in the past year, and may continue to stagnate.

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  • Given the low price of the November $100 calls, traders might consider getting in with an eye towards exiting in a day or two with mid double-digit profits if shares move higher. If shares slow down their recent rally, the option could quickly lose what little value it has left. Traders might consider a trade with a strike date further out to take advantage of a longer-term swing higher.

     

    Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.