Option Investor

New Portfolio Position - NeighborCare (NASDAQ:NCRX) Projected Gain = $250

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NCRX - NeighborCare $29.22

NeighborCare (NASDAQ:NCRX), incorporated in 1985, is a provider of institutional pharmacy services in the United States. The company offers it services to long-term care facilities in 32 states and the District of Columbia. Its pharmacy operations consist of institutional, community-based professional retail, and onsite pharmacies that are located in customers' facilities. In addition, NeighborCare operates home infusions, respiratory and medical equipment distribution centers.

NeighborCare has been a "buy-out" target of Omnicare (NYSE:OCR), a provider of contract pharmacy services, for nearly a year. The proposed deal has endured a number of obstacles, including ongoing objections by Neighborcare's board, which has continually rejected the $30 cash proposal. Omnicare eventually took its proposal to the company's investors, initiating a hostile bid in an attempt to complete the transaction. The strategy seemed to be working but the merger process has recently become stalled due to a protracted antitrust review by the Federal Trade Commission. Now investors must wait for the FTC's decision and the speculation surrounding the review has boosted the option premiums for both stocks. Despite the delay, it appears the value of NCRX is in the $28-$30 range and traders who agree with that assessment should consider this position.

Fundamentals Chart Earnings Dates Analyst Ratings

Suggested (Bullish) Option Position:

Sell Put JUN 22.50 QNY-RX

Target Price = $0.25 Open Interest = 3662
Potential Profit (10 contracts @ $0.25) = $250
Initial Margin (10 contracts) = $6,090
Return on Investment (max) = 4.2%
Cost Basis in Stock = $22.25
Days to Expiration = 27

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