UnitedHealth (UNH) shares due for rally post earnings?

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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 toward zero.

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.



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



This article appears in: Investing , Options

Referenced Stocks: UNH

Karla Yeh

Karla Yeh

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