Shares of drugstore and healthcare planning company CVS Health Corporation (CVS) are down about in-line with the overall market in the past year. One trader sees shares moving higher in the coming month.
That’s based on the February $87.50 calls. With 31 days until expiration, 15,089 contracts traded compared to a prior open interest of 360, for a 42-fold rise in volume on the trade. The buyer of the calls paid $3.95 to make the bullish bet.
CVS shares trade close to $90, so the options are slightly in-the-money. Shares are still well off their 52-week high of $111.25.
The healthcare company grew revenues by 10 percent over the past year, but earnings growth has been low. That’s taken shares a big high on the valuation side in the short-term.
Action to take: In a market rally, shares will likely trend higher. Following the past few weeks, there may a slight pullback, which could give long-term investors a better buying point, perhaps near the mid-$80 range.
That would give investors the chance to buy shares with a starting dividend closer to 3 percent from the current 2.7 percent.
For traders, the calls play to the current momentum, and can likely deliver mid-double-digit growth. But look for signs of the market sinking after its recent rally to take quick – and potentially small—profits.
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.