UnitedHealth (UNH) is one of the largest healthcare and insurance companies in the world, providing a wide range of health care benefits and services.
As a leader in the health insurance industry, UNH operates through its two main business platforms: UnitedHealthcare, which provides health insurance, and Optum, which delivers healthcare services, including data analytics and pharmacy care services.
UnitedHealth consistently demonstrates strong financial performance due to its diversified business model and extensive reach in the healthcare sector.
With a focus on technological innovation and expanding global healthcare solutions, UNH continues to grow and adapt to the evolving needs of the healthcare industry.
UnitedHealth has stayed above the expected range following four of the last six earnings announcements.
UNH Earnings Bull Put Spread
With earnings set for October 15th before the market open, implied volatility on UNH stock is through the roof.
Implied volatility is sitting at 31.47% compared to a twelve-month low of 10.79% and a high of 31.47%.
That means, it’s a great time to be an option seller.
If you have a bullish outlook for UnitedHealth for their earnings announcement, then a bull put spread is a great strategy to employ.
To execute a bull put spread, an investor would sell a naked put and then buy a further out-of-the-money put to create a spread.
A bull put spread is considered less risky than a naked put, because the losses are capped thanks to the bought put.
Potential Benefits
Bull put spreads offer several advantages for options traders seeking to generate income while managing risk.
They provide a defined-risk strategy, allowing traders to know their maximum potential loss upfront.
Additionally, bull put spreads benefit from time decay, as they profit from the erosion of extrinsic value over time.
This time decay accelerates as the expiration date approaches.
Bull put spreads will benefit from the drop in implied volatility that always occurs after an earnings announcement.
Potential Risks
While bull put spreads offer enticing benefits, they also come with inherent risks.
One significant risk is the potential for substantial losses if the underlying stock's price declines sharply.
Traders must also consider the possibility of early assignment, which can occur if the stock price moves below the short put option's strike price before expiration.
It's essential for traders to thoroughly understand and manage these risks when implementing this options strategy.
Selling an UNH Bull Put Spread
A trader selling the October 18th, $555-strike put and buying the $550-strike put on UNH would receive around $90 into their account, and would have a maximum risk of $410.
That represents a 21.95% return on risk between now and October 18th if UNH stock remains above $555.
If UNH stock closes below $550 on the expiration date the trade loses the full $410.
The breakeven point for the bull put spread is $554.10 which is calculated as $555 less the $0.90 option premium per contract.
Company Details
The Barchart Technical Opinion rating is a 96% Buy with a strengthening short-term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
Of the 23 analysts covering UNH, 21 have a Strong Buy rating and 2 have a Moderate Buy.
Conclusion
Selling a bull put spread on UNH ahead of earnings can offer traders an opportunity to capitalize on anticipated bullish sentiment while managing downside risk.
By carefully selecting strike prices and expiration dates, traders can position themselves to potentially profit from a favorable earnings outcome while limiting potential losses.
However, it's crucial for traders to conduct thorough analysis and adhere to risk management principles to navigate the inherent uncertainties associated with earnings events.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
