You Can Profit 328% from CVS Stock Without Buying a Single Share

CVS Stock

Earlier this month, CVS Health Corp. (NYSE: CVS) announced its $69 billion plan to acquire Aetna Inc. (NYSE: AET), the third-largest health insurer in the United States. If successful, it will be the largest deal of the year - and the largest ever in health insurance history.

CVS stock has been in focus after the deal, as it's up almost 9% in the last six weeks.

But that's nothing compared to the profit play Money Morning's options trading specialist, Tom Gentile, has found.

Gentile's strategy won't require you to buy a single share of CVS at its current price of $72.55. And best of all, you could more than quadruple your money in only six weeks.

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Before we get to Gentile's strategy, here's why CVS stock is presenting such a strong profit opportunity right now...

Why We're Targeting CVS Stock Right Now

Analysts say the acquisition will benefit customers by lowering the cost of drugs and increasing efficiency.

Since the two companies show little overlap in their businesses, the regulatory hurdle should not be a problem. Smart investors know that the small risk the deal fails allows them to position for profit at a lower price.

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Consensus opinion on Wall Street gives CVS stock a 12-month price target of $85. That's about a 17.2% gain if you just buy the stock.

However, that's just not good enough when part of the gain hinges on whether the CVS-Aetna deal goes smoothly. It's all about risk versus reward, and that reward is not good enough.

According to Gentile, an options strategy using in-the-money calls expiring in January could return a whopping 361%...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Specifically, he likes buying the January $70 call, which expires Jan. 18, 2018, and currently trades near $3.25. Assume that you have to wait all the way until expiration before the stock reaches its $85 goal. At that point, the option's time value is gone, and all that remains is the "in-the-money," or actual price difference between the strike price of $70 and target price of $85. That's $15.

Subtract what you paid for the option and get a net profit of $11.75 per options contract (or $1,175, since one contract equals 100 shares).

Crunch the numbers and see that is a whopping 361% gain. Not a bad deal, if you can get it.

The problem is that the analysts' price target of $85 is for 12 months from now, not this January.

That's why Gentile has another strategy...

Using LEAPs on CVS Stock in 2018

So is this trade unrealistic? Tom Gentile suggests looking at a different type of options product called "LEAPs," or "Long-Term Anticipation Securities." These are long-term stock options with expirations as far out as two and three years. And since LEAPS have much longer expirations, you've got much more time for the trade to move in your favor.

You can pick up the Jan. 18, 2019, $70 call for about $8.45. Even if you have to wait until this LEAP expires before CVS hits $85 and all the time value is gone, you're still left with $15 in real value. That gives you a profit potential of $6.55 per contract ($655). That's still a nice gain of 77.5%.

Again, compare that to the theoretical gain of 17.2% if you just buy CVS stock today. And don't forget, your downside risk is limited to your investment in the options or LEAPs - $325 or $845, respectively. Buying the equivalent amount of stock - 100 shares - would cost you $7,255.

Now, options trading isn't without risk, as every investor knows...

"In my 30 years of trading, the single most important lesson I've learned is this: You never chase trades," Tom said. "It's the fastest and easiest way to lose your money. And that's exactly why you should never open a trade without setting a limit price first (in this case, $8.45)."

Still, this play allows for a lower initial investment and bigger bang for your buck than buying CVS stock straight up.

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