Unusual Options Activity In Medtronic $MDT

| June 24, 2015 | 0 Comments

MDT OptionsUnusual Options Activity In Medtronic $MDT

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Medtronic $MDT is a massive medical equipment provider.  The company has a market cap of over $110 billion and recently purchased Covidien for around $50 billion.  For a good description of the company, follow the link.

$MDT is trading at $76.72, up 7% for the year.  That’s just 3% below the 52-week high and 29% from the 52-week low.

So what does unusual options activity in MDT tell us?

MDT makes an interesting case study for selling puts (I’ll discuss the trade specifics in a minute).  Basically, the stock sold off despite beating revenue and profit expectations in recent quarterly results.

From all appearances, this is just technical action and it should be short-term in nature.  In a nutshell, the stock price was at a multiple top and wasn’t able to break through the resistance.  Fundamentally, MDT is in good shape, and makes for a solid long-term buy candidate.

Here’s the deal…

This week, a trader sold a large amount of puts on MDT.  Keep in mind, a put option makes money when the underlying stock goes down.  So, the opposite is true when selling puts… that is, it makes money when the stock goes up (or doesn’t move at all).

More specifically, a trader sold more than 4,600 Weekly July 75.50 puts expiring on July 24th.  The contract price was $0.74, meaning the trader collected more than $340,000 on the trade.  That’s also the max gain, as long as MDT closes above $75.50 on July 24th.

This trade is mostly interesting to me because it basically showcases a stereotypical put selling opportunity.  The puts sold have decent value because the stock has dropped. But, the selloff is due to temporary conditions.

Meanwhile, there’s plenty of support around $75 from a technical standpoint.  And, from a fundamental perspective, any major drop in the share price should be considered a buying opportunity.

In other words, while selling puts has higher risk than other strategies, in this case it seems like a relatively low risk proposition.

Here’s the chart of $MDT:

unusual option activity, a chart of MDT

The stock price has moved generally sideways for the last few months, while remaining within range of the 50-day moving average.  You can see in June where the stock sold off fairly sharply despite posting solid results.

Although the short put strike is just over a $1 or so from the current price, there’s plenty of support around $75 to suggest the stock isn’t going to drop very far, if at all, from where it is now.

Remember, MDT doesn’t have to hit the highs for this trade to work.  Sideways motion is perfectly fine for a short put strategy.  As long as the share price doesn’t plunge (not likely), this looks to be a smart trade.  However, this isn’t the type of strategy I’d recommend for beginners or risk averse traders.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.