My limit to sell MHSRO (MHS June 75 Put – Medco Health Solutions Inc – NYSE: MHS) hit this morning just after opening. What’s cool is that my limit was for $2.50, but it hit for $3.20 while MHS was trading at $73.79, down from yesterday’s close at 78.02. That’s a drop of about 5% from yesterday’s close. What’s not cool is that MHS has fallen more since my trade. Back to what’s cool is that I received $309.25 for selling the put and that means I still have more than $100 in time value to give me more cushion and a bigger return.
What I don’t get yet is why MHS is falling like this. I’m hoping it’s a case of sell on the news and it will find its footing soon. It broke the short-term trend line that didn’t seem to strong anyway, but hasn’t dipped some other lines I draw. One line puts the potential support just above 73 (current price), another (using the low from 4/12) says 71.85 could be the magic number. The next potential short-term bottom is the high from 3/12, 69.70, which is close to the low from 3/20 of $70.36. That’s a lot of potential lines to follow, but for now I’m not too worried about making the wrong move with this trade. Medco beat earnings and raised guidance. That should mean something before June options expiration. If MHS stays flat for the next 1.7 months, the covered calls will bring in some nice income to go along with my put option income.
Marketwatch.com gave this brief update on yesterday’s earnings announcement. It all looks good to me and I think the trend will win.
“Medco Health Solutions said that its first-quarter net profit jumped to $274.8 million, or 94 cents a share, from $44.8 million, or 15 cents a share, a year ago, after a stronger performance from all business areas. On an adjusted basis, earnings per share rose to $1.03 a share. Analysts had been expecting earnings of 73 cents a share. The company also raised and narrowed its guidance for 2007 earnings per share to $3.02 to $3.07, up from the previous range of $2.94 to $3.01 per share. It’s expecting adjusted earnings in a range of $3.40 to $3.45 per share, up from a previous range of $3.31 to $3.40 per share. Sales rose to $11.16 billion, from $10.56 billion a year ago.”
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