UnitedHealth Group Inc, Aetna Inc Could Enjoy a Santa Claus Rally

Insurance stocks UnitedHealth Group Inc (NYSE:UNH) and Aetna Inc (NYSE:AET) have been historical outperformers in December

Nov 29, 2016 at 1:48 PM
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The S&P 500 Index (SPX) went on a tear after the presidential election, touching all-time highs just last week. While the broader equities market has taken a post-Thanksgiving breather this week, below are the 25 SPX stocks that could enjoy a Santa Claus rally in December, if history is any indicator. Making the cut were insurance issues UnitedHealth Group Inc (NYSE:UNH) and Aetna Inc (NYSE:AET).

Best SPX December Nov 29

According to Schaeffer's Senior Quantitative Analyst Rocky White, UNH has ended December higher in eight of the past 10 years, averaging a gain of 5.87%. The stock just touched a record high of $158.12 today, in fact, after the blue-chip company issued solid 2017 guidance and announced a strategic partnership between its OptumRx pharmacy benefit manager and CVS Health Corp (NYSE:CVS). UNH has added more than 11.5% in November, with the election results pushing the shares north of former resistance in the $144-$145 area. UNH was last seen 3.8% higher at $157.78.

Options traders have been much more optimistic than usual since the election, too -- despite initial skepticism about a "GOP triple play." On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.35 UNH calls for every put during the past two weeks. This ratio is higher than 87% of all others from the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish.

Today, UNH options are crossing the tape at three times the average intraday clip, with calls outnumbering puts, 12,000 to 8,400. It appears traders are placing short-term bets, with possible buy-to-open action spotted at the December 157.50 call and weekly 12/23 143-strike put. Perhaps the put buyers are shareholders protecting profits in the event of a short-term pullback for UNH.

Whatever the motive, UnitedHealth Group Inc's short-term options are attractively priced at the moment. The stock's Schaeffer's Volatility Index (SVI) of 20% is higher than just 36% of all other readings from the past 12 months, pointing to historically muted volatility expectations.

AET is enjoying a halo lift, up 2.8% at $131.95. The shares just touched an annual high of $132.57, and are within 2 points of their record high of $134.40, touched in July 2015. AET has performed even better than UNH in December, historically, ending the month in the black nine of the past 10 years. In fact, the stock averages a monthly gain of 6.5%.

Today, AET calls are flying off the shelves at four times the average intraday rate, outpacing puts by a 3-to-1 margin. It looks like much of the action is attributable to spread activity, with one trader possibly taking profits on 2,800 January 2017 120-strike calls, and buying to open 4,500 January 2017 135-strike calls, to bet on higher highs in the next couple of months. 

However, amid the Department of Justice's attempts to block its buyout of Humana Inc (NYSE:HUM) -- the trial kicks off Monday -- AET option players have actually been picking up puts at a rapid-fire rate. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.83 is in the 81st percentile of its annual range, suggesting buyers have scooped up AET puts over calls at a faster-than-usual clip during the past 10 sessions. What's more, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.22 is in the 96th percentile of its annual range, implying that near-term options traders have rarely been more put-heavy in the past year.

Likewise, short interest on AET surged 30.6% during the past two reporting periods, suggesting options traders aren't the only group upping the bearish ante. Still, just 2.5% of AET's float is dedicated to short interest, representing a meager two days' worth of buying power, at the security's average daily trading volume.

Even before today's uptick, Aetna Inc shares sported a 14-day Relative Strength Index (RSI) of 72 -- in overbought territory. In fact, the SPDR S&P Insurance ETF (KIE) recently emerged as one of the most overbought exchange-traded funds (ETFs) right now. As such, it wouldn't be surprising to see AET run into a potential speed bump at former highs.

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