Monday, March 14, 2011

Trade of the Day: Cerner April/June $100 long put calendar

The Trade
A trader sold 10,000 April $100 puts at $1.70, and bought 10,000 June $100 puts at $4.30 for a debit of $2.60 or $2,600,000.

As you can see from the graph above, the long put calendar has limited risk and limited profit potential. The maximum risk is limited to the debit. The maximum profit potential is $6,125,869 at an underlying stock price of $100 at expiration. At this price level at expiration, the short puts would expire worthless, and the long puts would be in the money. The upper break even price level at expiration is $114.75.

The line shown is the upper break even price level. CERN traded 23,904 contracts today compared to average daily volume of 994. The 52-week range is a low of $72.05 and a high of $104.99. CERN closed today at $103.53, nearly closing at all time highs. It's interesting to note that CERN will report earnings in late April.

Cerner Corporation is a supplier of healthcare information technology solutions, healthcare devices and related services. These solutions are licensed by approximately 9,000 facilities globally, including more than 2,600 hospitals; 3,500 physician practices covering more than 30,000 physicians; 500 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 800 home health facilities, and 1,600 retail pharmacies. Cerner Solutions optimize processes for healthcare organizations.

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