Healthcare stocks blasted higher last week following the Supreme Court’s ruling that “Obamacare” subsidies were legal. This gave the healthcare sector a boost, with Community Health (CYH), Tenet Healthcare (THC) and Universal Health (UHS) soaring on the news. Community Health and Universal Health surged to fresh 52-week peaks.
Tenet Healthcare traded up to $57.70 on last Thursday’s news and $58.61 on Friday. While I wouldn’t chase the first two aforementioned stocks, Tenet Healthcare could be a candidate for an option trade, as its 52-week peak is north of $63. This would represent possible double-digit gains in the stock from current levels if shares can reach fresh highs.
The Tenet Healthcare July 59 calls (THC150717C00059000) traded over 1,000 contracts on Friday. This is a signal that bullish traders are expecting a run at the 52-week highs as well.
I started watching the THC July 60 calls (THC150717C00060000) on Thursday after they jumped 50% and traded to a high of $1.36. They closed at $0.40 on Wednesday, $0.60 on Thursday and traded to a high of $1.25 on Friday.
Aggressive traders could nibble on the THC July 60 calls to play a continued move higher. However, with a lot of news hanging in the balance this week with Greece and up in the air and a three-day weekend ahead, it may be better to wait until next week and look at August options. The bid/ask spread on THC options is ridiculously high at the moment. This is the one caveat that has me cautious, as I like to trade options with a spread of a nickel or less.
Friday’s positive close on the Dow ended a five-Friday losing streak, and there will be no trading this Friday. This means that today’s close will be an important clue on how the rest of the week shakes out. While a positive Monday on the Dow could signal that the market is prepared to handle the outcome of Greece, I think the referendum and delay into next week was not something the suits-and-ties were prepared for.
My gut feeling is that this week could get rocky, and I think more talking heads and slick-talking pros will once again jump off of the bulls’ bandwagon. Investor Carl Icahn once again said he was worried about the market, after the Nasdaq just set an all-time high, following his last bearish comments on the market months ago. I can’t count the number of times he has predicted a market crash in the last six years.
A nasty week could set up a snapback rally the following week after Greece’s fate is finally known, and that could last into mid-to-late July. If the major moving averages on all the major indices start to fail, the action could stay bearish for just as long.
It will be important the VIX stays below 17.50 on the closes this week, but I wouldn’t be surprised to see a spike to 20 on panic selling. So, while I like the prospects for Tenet Healthcare, take any longs with caution until the air clears a little bit.
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