Options: Aetna Has a Bull in Its Corner

At least one investor thinks shares will continue to rally over the next few months.
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By Jud Pyle, CFA, chief investment strategist for the Options News Network

Shares of health care benefits provider

Aetna

(AET)

are up about 50% since March 5, when the stock dipped to a 52-week low of $18.99. At least one options investor boosted volume today on a bullish bet that Aetna shares will continue to rally in the next couple months.

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Looking at the July 30 calls, more than 8,600 of these contracts have traded so far today vs. current open interest of 6,000. According to ONN's Sidewinder report, an investor bought about 5,000 of these calls at an average price of $1 per contract between 9:50 a.m. EDT and 9:55 a.m. EDT with the stock trading around $27.92. Aetna stock is currently trading at $27.65, up about 28 cents on the day.

It is interesting that some investors are currently bullish on Aetna, as the shares have been unable to rally above their February highs. On February 6, Aetna shares reached $34.52. In recent months, despite its notable rally, Aetna has not closed above $27.72, which it hit on May 8 just ahead of President Obama's fiscal 2010 budget proposal. Today, however, at least one bull is betting that Aetna stock could breach the $30 mark by July expiration.

Across all strikes, approximately 56,000 Aetna options have changed hands with about one hour left to go in the trading day. This compares to normal daily options volume of approximately 29,000 contracts.

Aetna did not announce significant news today, but I have remained bullish on health care stocks mainly because of expectations for a bipartisan health care reform policy out of Washington. Bullish call-buying in Aetna does not necessarily mean these shares will surge, but some investors are betting that they will rally quickly and expire higher than $31 (the strike plus the premium paid) come July expiration.

Meet Jud Pyle live in Las Vegas at the Forex & Options Expo.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."