On Thursday, the Centers for Medicare and Medicaid Services (CMS) released its first round of reimbursement rate cuts. This news directly affected Lincare Holdings Inc. (LNCR), with the medical equipment provider falling roughly 8.3% so far today, to its current perch around $29.00.
Option players have flocked to the equity today, with roughly 6,000 contracts traded by midday -- well above LNCR's usual daily volume of around 1,262 contracts.
The day's most popular strike has been the August 27.50 put, with 1,320 contracts traded -- 79% at the bid price, suggesting they were sold. With just 27 contracts currently open at this strike, it seems these puts are fresh positions. By selling to open the August 27.50 put, traders are counting on the $27.50 level to hold as a floor for LNCR for the next month.
Likewise, the July 27.50 put has seen volume of 438 contracts traded on open interest of just 46 contracts, revealing the addition of new positions at this strike. The majority of these puts also traded at the bid price, revealing they were likely sold to open.
For the front month series, peak put open interest of over 5,000 contracts can be found at the 30 strike. Given today's tumble, these puts are now in the money.
Option players are generally optimistic about LNCR, as evidenced by the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.68, which ranks in the 14th annual percentile. In other words, short-term option players have been more bullishly aligned toward LNCR 14% of the time in the last year.
Today's put writers may be counting on an additional level of support from LNCR's 10-month moving average. This long-term trendline has supported the equipment issue since June 2009, and is currently docked just beneath the 27.50 level, at 27.46.
Should this level hold as support, some of the lingering bears could abandon ship. While short interest fell 6.6% during the most recent reporting period, these bearish bets still account for 8.5% of the stock's available float -- plenty of sideline cash to help LNCR resume its uptrend.
Analysts have yet to board the bullish bandwagon as well. According to Zacks, the stock has earned six "hold" or worse ratings, compared to four "buy" or better rankings. This configuration leaves the door open to potential upgrades, which could give the shares the boost they need after today's tumble.
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