Healthcare Bulls Get a Second Dose of Earnings-Driven Profits

Options traders in the healthcare sector posted more profits Wednesday, on bullish positions opened in LivaNova and Novartis just weeks earlier. These investors made their purchases around the same time we saw bullish activity in other components of the SPDR Healthcare Select Sector Fund ETF, and likely were making a statement that the upcoming earnings cycle would be good news for the industry.

On July 24, in LivaNova, Investitute's tracking systems detected the purchase of 1,500 August $110 calls for $5.60 as part of a bullish roll with shares at $110.48. That was clearly a new position, as volume was well above the strike's open interest of 270 contracts.

Those LIVN August $110 calls traded for $10 on Wednesday, almost twice their purchase price and just over a week later. The stock rose 7.98% at the same time since the investors purchased those calls. LivaNova jumped 10.41% to close at $121.60 on August 1 after medical device company reported earnings that morning beating on both the top and bottom lines while maintaining guidance through the rest of its fiscal year.

On July 12, in Novartis, Investitute's tracking systems detected the purchase of 1,500 August $77.50 calls for $2.62 to $2.80 as part of a bullish roll with shares at $78.90. This was clearly a new position, as volume was well above the strike's open interest of 223 contracts.

Those NVS August $77.50 calls traded for $6.26 on August 1, more than double their purchase prices and only three weeks from their purchase date. The stock rose 5.5% at the same time, showing how quickly options can far outpace gains in their underlying shares. NVS was down 0.25% to $83.69 on Wednesday, cooling its post-earnings run during which the drug maker had climbed steadily after beating quarterly estimates and affirming a bullish outlook.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

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