What’s Up With Omnicare?

Call option volume for Omnicare (OCR) was significantly up today, and there does not appear to be any related news. Omincare’s stock price was also little changed from Friday’s close.

Omnicare is in the pharmaceutical services business targeting the geriatric market segment. The company provides a wide range of products and services including pharmacy services to nursing facilities and assisted living communities.

Omnicare’s competitors include PharMerica (PMC), Covenant Care (private) and Option Care (private).

Omnicare’s stock price has been stuck in a trading range between $20 and $30 over the last year. Omincare’s stock price has been in a slide over the last four months and its stock price took a big hit near the end of July as the company cut is profit outlook.

Omnicare’s October 22.5 call option saw significant volume today. This call option is out-of-the-money and is due to expire in only 5 days. This is a very bullish indicator. The November 22.5 call option also saw an increase in volume today.

The Strike of Pain for Omnicare is also very bullish with the strike of pain at 22.50 for October. The Strike of Pain represents the strike where the options buyers will lose the most money and the option sellers will gain the most money at expiration.

So what’s up with Omnicare? Omnicare’s earnings report is not due until 11/5/2009, which is a little early to see this kind of call option volume, especially for the October 22.5 call options which expire before the earnings report on 11/5/2009. Maybe one of the big drugstore companies has their eye on Omnicare, CVS Caremark (CVS), Rite Aid (RAD), Walgreen (WAG) or Walmart (WMT)?

A covered call investing position for Omnicare for November expiration looks attractive with a %if unchanged potential return of 4.1% and a %if assigned potential return of 8.7%. The timeframe for potentially realizing these returns is only 40 days. The call option to sell would be the November 22.50 with a ticker symbol of OCRKX.

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To enter the covered call investing position an investor would purchase the stocks in multiples of 100 shares and sell one call option for each 100 shares of stock purchased.

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[tags] pharmaceutical services, geriatric, nursing facilities, assisted living communities, CVS, CVS Corp., OCR, Omnicare Inc., PMC, Pharmerica Corp., RAD, Rite Aid Corp., WAG, Walgreen Co., WMT, Wal-Mart Stores Inc. [/tags]