UnitedHealth (UNH) puts active due to heavy selling

By Karla Yeh,

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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 morning trading.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: UNH

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Karla Yeh

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