One investor is using options to wring profits out of
UnitedHealth as the managed-care giant continues to muscle its way
optionMONSTER's tracking systems detected the purchase of about
1,800 July 62.50 calls for $5.17 and the sale of a matching number
of August 65 calls for $3.50. Volume was below open interest at the
lower strike, indicating that an existing short position was closed
and rolled to the higher strike.
The investor probably owns UNH and is using
to earn income and manage risk. He or she previously was on the
hook to sell shares for $62.50 but yesterday's transaction raised
that price to $65. The trader paid $1.67 for the right to make that
additional $2.50 and committed to another month in the position,
during which they have downside risk. (See our
UNH rose 2.10 percent to $67.56 and is up 25 percent so far this
year. The stock has been working its way higher since breaking out
of a 12-month consolidation pattern in April. Earnings have mostly
beaten estimates, and it received another boost over the weekend
when Barron's said it will benefit from the rollout of Obamacare.
Yesterday's short-call roll more closely resembles a fixed-income
trade than an equity investment because it has limited profits with
moderate downside risk. In addition to the premium earned from
selling the contracts, he or she also stands to collect the
company's 1.7 percent dividend yield.
Total option volume was 4 times greater than average in the
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