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Interesting January 2016 Stock Options for UNH

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is UnitedHealth Group Inc (Symbol: UNH). So this week we highlight one interesting put contract, and one interesting call contract, from the January 2016 expiration for UNH. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $108 strike, which has a bid at the time of this writing of $2.00. Collecting that bid as the premium represents a 1.9% return against the $108 commitment, or a 14.7% annualized rate of return (at Stock Options Channel we call this the YieldBoost ).

Selling a put does not give an investor access to UNH's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless UnitedHealth Group Inc sees its shares fall 6% and the contract is exercised (resulting in a cost basis of $106.00 per share before broker commissions, subtracting the $2.00 from $108), the only upside to the put seller is from collecting that premium for the 14.7% annualized rate of return.

Worth considering, is that the annualized 14.7% figure actually exceeds the 1.8% annualized dividend paid by UnitedHealth Group Inc by 12.9%, based on the current share price of $114.82. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to fall 5.97% to reach the $108 strike price.

Always important when discussing dividends is the fact that, in general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of UnitedHealth Group Inc, looking at the dividend history chart for UNH below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 1.8% annualized dividend yield.

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The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the January 2016 put or call options highlighted in this article deliver a rate of return that represents good reward for the risks. We calculate the trailing twelve month volatility for UnitedHealth Group Inc (considering the last 251 trading day UNH historical stock prices using closing values, as well as today's price of $114.82) to be 26%.

In mid-afternoon trading on Monday, the put volume among S&P 500 components was 1.07M contracts, with call volume at 1.30M, for a put:call ratio of 0.82 so far for the day, which is unusually high compared to the long-term median put:call ratio of .65. In other words, there are lots more put buyers out there in options trading so far today than would normally be seen, as compared to call buyers. Find out which 15 call and put options traders are talking about today .

Top YieldBoost UNH Calls »

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


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

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