DailyPlay – Opening Trade (CAH) – May 26, 2023

CAH Bearish Opening Trade Signal

View CAH Trade

Strategy Details

Strategy: Long Put

Direction: Bearish

Details: Buy to Open 10 Contracts July 21st $82.50 Puts @ $2.10 Debit per contract.

Total Risk: This trade has a max risk of $2,100 (10 Contracts x $210) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $210 to select the # contracts for your portfolio.

Counter Trend Signal: This stock is in a bullish trend, but expected to trade lower over the duration of this trade, as it has reached a point of exhaustion.

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 65

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Market breadth has been poor with tech dragging the market cap-weighted indices higher in an “AI lead” rally. One sector that has lagged is healthcare and continues to underperform the market. Cardinal Health (CAH) on paper looks like a strong out-performer in the healthcare space, printing a new 52-week high last week. However on closer inspection as it broke out above its $80 resistance level to 2016 highs, it saw negative divergence with a +9 setup on the Weekly Chart. Couple this with a fundamental picture that looks far from attractive; CAH has seen no EPS growth since 2016 despite growing revenues from $130b to $180b last FY. What I see is a company that has rallied to a prior high from 2016 that has underperformed relative to its sector by 50% since 2016 with classic signs of exhaustion. My hunch is that this breakout and rally will fade and reverse lower. With very low implied volatilities in CAH options, I think its worth considering bearish exposure with a simple outright put option. I’m looking at the July $82.5 Puts @ $2.10 Debit, risking only 2.5% of the stock’s value to gain unlimited downside exposure if CAH were to reverse lower. 

CAH – Daily