Medical device giant targeted for breakout: Options recap

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Medical-device giant Medtronic (MDT) has gone nowhere for the last two years, but options traders are looking for a breakout.

About 25,000 August 90 calls were bought on Tuesday for $0.74 — pretty noteworthy for a company that averaged only 10,000 contracts per session in the previous month.

Calls tend to profit from a rally because they fix the price where a security can be purchased. (See our Knowledge Center.)

In this case the investor is probably aware that MDT hit resistance around $90 in July 2016 and again in June 2017. The calls ensure he or she won’t miss a breakout through that level. They’ll lose the premium if it stays range bound, but that’s less than 1 percent of the stock’s price.

MDT ended the session up 0.14 percent to $86.86. Management’s been trying to improve results with cost cuts, better execution and new products this year. At least two analysts raised their price targets after strong earnings on May 24 suggested MDT was gaining market share. The stock also ripped earlier in the month after hiring a Wall Street veteran as VP for strategy and development.

Overall on Tuesday, calls accounted for a bullish 95 percent of the total.

Medtronic (MDT) chart with 50-day moving average
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.