Unfortunately for healthcare stocks, the budget/debt ceiling debate in Washington is likely to lead to discounts. The sector has enjoyed a lot of bullish momentum that has left it sensitive to even slight pressure from sellers. It seems likely that the budget will eventually be passed with “Obamacare” intact, but in the meantime, hospitals, pharmaceuticals and managed care companies are due for a decline.
Today’s recommendation is a bearish position in Tenet Healthcare (THC) as it bounces down from the top of its descending channel. The target is the channel’s support level near $37.50 in the short term. There is also some potential for news in the short term to disrupt the stock and send it much lower. Last week’s news from Walgreen Co. (WAG) and its effect on managed care companies is a good example of the kind of unexpected issues that stocks in the group are dealing with right now.
Recommendation: Use a limit order and ‘buy to open’ the THC October 40 Puts (THC131019P00040000) at current levels.
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.