Rolled from the Sept call contracts to the Oct contract. Sold Sept 65 @ .55, Bought Oct @ 1.60

Wellcare health provides managed care services for government-sponsored health care programs in the United States. The company offers Medicaid plans, including plans for beneficiaries of Temporary Assistance for Needy Families (TANF) programs; Supplemental Security Income (SSI) programs; and ABD programs and state-based programs, such as Children’s Health Insurance Programs (CHIP) and Family Health Plus (FHP) programs for qualifying families who are not eligible for Medicaid.

The stock dropped recently after a large gap up in July. Several analysts (GS, Wedbush, DB) came out on 8/6 reiterating their buy ratings, but lowering their PTs ($61-$70). The price gap (see white rectangle on chart) is “filled” and we now see a bullish divergence in price taking place while the stock price has made some shallow lower lows (note the steeper rate of rise in the bullish MACD divergence compared with the shallow rate of decline of lower lows in the share price).

I think that this is a very nice risk/reward play. We have risk down to $50 ($4.50 lower from here (54.50/shr)) and reward up to $68 (13.50 higher). That’s a 3:1 reward/risk ratio in the stock price. If WCG makes it up to $68 before Expiration, this will show a nice profit.

Chart courtesy Finviz. Click to open larger.

Additional Image Provided by Terrence:

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