Traders are looking for Baxter to rally by early next year.
optionMONSTER's Heat Seeker system shows that about 2,000 January 35 calls were purchased for $2.75 to $2.90 yesterday. This represents fresh buying, as open interest in the strike was only 98 contracts before the trade appeared.
These long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. But the contracts will quickly lose value if the stock drops because they are in the money , which means that they will track the share price closely. (See our Education section)
BAX fell 0.66 percent to $36.07 yesterday. The medical-products manufacturer hit an all-time high of $43.44 in early August after it beat quarterly estimates and activist investor Dan Loeb disclosed a stake of nearly 10 percent in the company. Shares initially bounced after falling to $34.50 at the depths of last month's broader-market selloff, but they have since faltered.
Total option volume in the name was nearly 50 percent higher than its daily average for the last month. Overall calls outnumbered puts by a bullish 21-to-1 ratio.
Disclosure: I am long BAX.
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