As early broad-market weakness puts downward pressure across the
entire health care sector, shares of
UnitedHealth Group Inc. (NYSE: UNH )
are dropping down toward their 52-week low. Options action out of
the gate suggests at least one investor expects the downside to be
limited during the near term and expressed this moderately bullish
bet by selling a hefty number of puts.
At 10:27 a.m. EST,
5,000 near-the-money August 28 puts changed hands versus
current open interest of 4,288 contracts.
The puts changed hands for $1.63 per contract, which was right at
the bid price when the volume hit the tape. This put seller could
retain a maximum profit of the entire premium collected if UNH
shares climb slightly and are trading higher than the strike price
at August options expiration. If UNH shares are trading between the
strike price and the breakeven price of $26.37, the investor keeps
some of the credit collected. The investor incurs significant
losses if the stock is trading below the breakeven price, and could
continue to lose money as the stock moves closer to zero. Short put
trades such as this limit maximum gain in exchange for significant
risk to call for limited downside. It's interesting that this UNH
investor does not expect the stock to drop more than roughly 5%
during the next couple of months.
UNH is due to announce earnings figures on July 20 before the
market opens and analysts estimate earnings of 74 cents per share.
The stock dropped 67 cents, or more than 2%, to $27.73 during