Stocks quoted in this article:
Call volume surged on UnitedHealth Group Inc. (NYSE:UNH) during Wednesday's session, with roughly 18,000 contracts crossing the tape. This rush of activity represented more than four times the Dow component's average daily call volume. Meanwhile, only 4,437 puts were traded on UNH yesterday.
The day's most active strike was the September 62.50 call, where 10,886 contracts were traded. The majority of these at-the-money options changed hands at the bid price, indicating they were sold, and open interest rose overnight by 9,880 contracts. In other words, it looks as though options players were selling to open a new batch of calls on UnitedHealth Group in Wednesday's trading.
These intermediate-term options were sold at a volume-weighted average price (VWAP) of $2.28, which represents the maximum potential profit on the trade. If UNH remains at or below $62.50 through September expiration, call sellers can pocket this entire amount. Losses will begin to accrue on a rise above breakeven at $64.78 (call strike plus VWAP). It's also worth noting that call sellers run the risk of assignment on any move by UNH shares above the strike price of $62.50, though this threat remains relatively low until expiration draws closer.
Following yesterday's influx of premium-selling activity, it seems that options players definitely prefer short calls over long on UNH. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have sold to open 12,529 calls on the healthcare stock during the past 10 days, while only 4,978 calls have been bought to open. In other words, traders have sold 2.52 times more calls than they've purchased on UNH over the past couple of weeks.
UnitedHealth Group (NYSE:UNH) rallied alongside its fellow Dow components on Wednesday, ending the session at $62.51. However, just overhead is the $63 level, which previously capped the stock's rally attempts throughout the early weeks of April.