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How Long Will This Health Care Firm's Rally Last?

David Russell|writer, OptionMonster
Tuesday, 1 Dec 2009 | 8:03 AM ET

Medco Health Solutions has been rallying to new highs for the last month, and now at least one investor is positioning for a drop.

OptionMonster's tracking programsdetected heavy buying of the December 60 puts, which traded 7,845 times against open interest of 1,332 contracts. All of the institutional-sized transactions priced for $0.45.

Medco Health rose 1.07 percent to $63.16 yesterday. The stock is up 13 percent in the last month after spending September and October breaking through an old high of $54.63 that was established in early 2008.

The company reported better-than-expected revenue and earnings the last time it reported results on Nov. 3. Management also issued a bullish forecast for the year, citing market-share gains.

Monday's puts buying may have been executed by a bearish trader looking for an outright drop or an investor who owns the shares and wishes to protect that position from a potential correction. Medco must fall at least 6 percent in the next three weeks for the trade to make money.

The trade pushed overall options volume in the name to four times greater than average. Puts accounted for 78 percent of the activity.

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David Russell is a reporter and writer for OptionMonster.

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