Options action out of the gate in healthcare name
UnitedHealth Group Inc. (NYSE: UNH )
suggests at least one investor expects upside in the stock
following the company's earnings announcement due in two trading
days. The August 28 puts and August 33 calls were active as part of
a synthetic long stock (split strikes) trade.
At 10:02 a.m. EST, 5,000 out-of-the-money (OTM) August 28 puts
changed hands for 33 cents per contract while the same number of
OTM August 33 calls crossed the tape for 25 cents per contract. A
look at time and sales shows the investor likely collected eight
cents to open this synthetic long stock spread to call for at least
9% of upside during the next few weeks until August options
expiration. A synthetic long stock spread such as this is similar
to a long stock position, but has a different risk/reward profile.
If UNH shares are trading between the strike prices, the investor
keeps the credit collected for the spread, but could theoretically
make unlimited profits if the stock continues to the upside and
rallies higher than the higher strike. On the other hand, the
investor begins to lose money if the stock is trading below the
lower strike and could suffer significant losses as UNH shares move
It looks like the investor could have tied this options action
to a stock position, which would turn the bullish directional play
into a volatility bet. This article, however, focuses only on the
options action on the tape that suggests an investor expects the
stock to experience a near-term rally.
UNH shares climbed 12 cents to $30.44 during morning trading
without any notable news from the company today. UNH is scheduled
to announce earnings figures on July 20 before the market opens.
Analysts estimate earnings of 75 cents per share.