Why Medco Options Are Boiling—Second Time in 10 Days

For the second time in 10 days, Medco Health has lit up our screens with upside option activity.

Trading was focused yesterday on the November 60 calls, where more than 3,600 were bought for $0.55 to $0.65 at more than double the open interest, according to OptionMonster's real-time tracking systems. This activity amounted to more than half the total option volume in the name and dwarfed the average call turnover at that strike of just 148 a day.

Medco shares closed yesterday up 0.42 percent to $59.49. The health care company gapped up after raising its 2010 outlook at the beginning of this month and has been running higher ever since. Shares have been on a tear since the September lows but are still short of the January and March highs over $66

The calls purchased yesterday expire on Nov. 19 but need to gain only 2 percent to be profitable. The activity followed buying of the November 52.50 calls on Nov. 1, which paid off quickly when shares gapped up to $58 the very next day.


Pete Najarian does not at this time hold significant shares of MHS.

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.