Options Bulls Must Pay Up To Trade UnitedHealth Stock

UNH stock pulled back to a key trendline last week

by Patrick Martin

Published on Jan 12, 2018 at 1:17 PM

Earnings season is upon us, and Dow component UnitedHealth Group Inc (NYSE:UNH) is set to report fourth-quarter earnings next Tuesday before the open. Below, we will break down UnitedHealth's upbeat earnings history, as well as some other "buy" signals that have cropped up lately for the Dow stock.

UNH stock has moved higher the day after seven of its last eight earnings releases, including a 5.5% bump last October. On average, the shares have moved 2.6% in the session after the last eight earnings reports, regardless of direction. This time around, options traders are pricing in a slightly bigger swing of 3.2% for UNH, per at-the-money implied volatility data.

Earlier this morning, the Dow stock was the subject of some bullish analyst attention, with Cowen and Jefferies issuing price-target hikes to $260 and $280, respectively. The latter firm -- which is also bullish on fellow insurer Anthem (ANTM) -- cited growing government programs and tax reform as two reasons for its upwardly revised outlook on the security.

When looking at UnitedHealth's performance on the charts, it's not hard to see why the analysts are optimistic. The shares have roughly doubled over the past two years, and were last seen trading up 1.4% to trade at $228.51 -- just below their Dec. 4 record high of $231.77.

Last week, the equity pulled back to within one standard deviation of its 40-day moving average, a trendline with historically bullish implications. According to Schaeffer's Senior Quantitative Analyst Rocky White, following the last 13 pullbacks to the 40-day moving average in the past three years, UnitedHealth stock was up an average 2.06% one month later, and higher 75% of the time. If past is precedent, a move of similar magnitude could vault UNH past the $130 level to record highs.

Pullbacks UNH

It seems recent option buyers are also banking higher highs for UNH. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 3.10 ranks 2 percentage points from a 52-week high.
 
Options traders looking to buy premium should be warned, however. The security's 30-day implied volatility skew of 9.3% ranks in the 12th percentile of its annual range, indicating calls are commanding a higher volatility premium than their put counterparts.  
 

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