Quest Diagnostics Sees Bullish Move

At least one investors bought calls today expectations of a rise in the stock.
Author:
Publish date:

CHICAGO (

TheStreet

) -- Shares of

Quest Diagnostics

(DGX) - Get Report

rose nearly 3% today to $59.87.

The company has confirmed that it will release quarterly earnings results on Wednesday prior to the open. At least one investor on Monday expressed a bullish view by buying calls looking for a potential bump in the stock.

Looking at the May 65 calls, we find that more than 9,000 contracts traded on the day. Open interest in these calls was 5,353 contracts at the start of the day. What is most noteworthy about this volume is that most of the activity is on the buy side, meaning there are more buyers of these calls than sellers.

The buying is understandable for two reasons. The first is that in the May options, the investor will own the options at the time that earnings are announced Wednesday.

A second catalyst for the buying could be the fact that rumors have been making the rounds that DGX could be a potential acquisition target. The name that made the rounds as the possible suitor was

Merck

(MRK) - Get Report

.

The May 65 call options traded for the majority of the day for approximately 45 cents per contract. At that price, the buyer just needs the stock to be above $65.45 to be in the money at expiration, unless the calls rally prior to expiration, in which case the investor could elect to sell out the calls and lock in profits.

For example, the calls finished the day at 55 cents, so the investor is up a tidy 22% on his $400,000 investment already.

-- Written by Jud Pyle in Chicago

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."