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This Deal Could Make This Company A Market Leader

This Deal Could Make This Company A Market Leader

Partnerships can be important to many companies. A recent example, as GlobeNewswire reported,

“Teladoc Health (NYSE: TDOC), the global leader in virtual care, announces today its partnership with Johnston Group, which will see over 30,000 small- to mid-size businesses be the first in Canada to access Teladoc Telemedicine Services.

Businesses who are members of the Chambers of Commerce Group Insurance Plan, the number one employee benefits plan for small- to mid-size companies in the country and managed by Johnston Group, will offer their employees in Canada this valuable service,  providing 24×7 access to convenient, high-quality medical care regardless of their location across Canada or the U.S.

The stock was up on the news.

TDOC daily chart

The telemedicine offering expands the portfolio of Teladoc Health virtual care services provided by Johnston Group to Chambers of Commerce Group Insurance Plan members.

The two companies also collaborate to offer Best Doctors branded expert medical services, which connect Canadians with world-renowned medical specialists to resolve questions about complex conditions from cancer, heart disease and musculoskeletal issues, to a wide range of other medical issues.

“Johnston Group is building on its current virtual care offering with Teladoc Health by providing more virtual solutions via a single platform,” said Dave Angus, president, Johnston Group.

“This partnership is bringing together unrivaled market expertise and high-quality health services to support Canadian businesses from coast-to-coast, no matter their size.”

Teladoc’s Telemedicine Services connect patients with a licensed doctor who speaks the member’s choice of language in French or English and can provide immediate resolution for an array of conditions.

Cold and flu, allergies, upper respiratory infections, pink eye and urinary tract infections are among the many conditions for which members can be diagnosed and prescribed medication (if necessary), via phone or mobile app, 24x7x365.

“This service will offer incredible convenience, time savings, and value for our team as it allows them to access high-quality medical care around their own schedules and needs,” said McKenzie Hamp, Director, People & Culture at 7shifts Employee Scheduling Software Inc.

“As a SaaS company, we’re always looking to streamline everyday processes through the most trusted and leading technology solutions. Teladoc Health is providing just that as they disrupt the healthcare industry by removing the barriers individuals and families face in accessing care.”

TDOC weekly chart

A Trade for Short Term Bulls

As with the ownership of any stock, buying TDOC could require a significant amount of capital and exposes the investor to standard risks of owning a stock.

To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.

Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.

To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.

This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.

bull call spread

Source: The Options Industry Council

Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.

This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.

A Specific Trade for TDOC

Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.

When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.

For TDOC, the October 18 options allow a trader to gain exposure to the stock.

An October 18 $75 call option can be bought for about $2.33 and the October 18 $80 call could be sold for about $0.95. This trade would cost $1.38 to open, or $138 since each contract covers 100 shares of stock.

The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.

In this trade, the maximum loss would be equal to the amount spent to open the trade, or $138.

The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.

For this trade in TDOC the maximum gain is $3.62 ($80 – $75= $5; $5 – $1.38 = $3.62). This represents $362 per contract since each contract covers 100 shares.

Most brokers will require minimum trading capital equal to the risk on the trade, or $138 to open this trade.

That is a potential gain of about 162% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.