Healthcare Stock Flashing Buy Before the Thanksgiving Holiday

Options traders have been leaning bearishly toward UNH, however

Managing Editor
Nov 13, 2018 at 1:23 PM
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Staying with the theme of stocks to keep an eye on ahead of the holidays, today we are zeroing in on blue chip UnitedHealth Group Inc (NYSE:UNH). UNH landed a spot on Schaeffer's Senior Quantitative Analyst Rocky White's list of 25 stocks to buy before Thanksgiving, and is one of just two Dow names to make the cut. Below, we will look into why history says now is a good time to hop onto UnitedHealth stock, and how the security has been faring on the charts.

UnitedHealth stock has been in a long-term uptrend on the charts, adding 27% over the past 12 months, with a line of support stemming from the 40-day moving average -- a trendline UNH retook after U.S. midterm elections. At last check, UNH was down 0.3% at $271.51, but remains back above the aforementioned trendline. Just last week, on Nov. 9, the shares touched an all-time high of $278.

Daily Chart of UNH with 40MA

According to White, UNH is one of the S&P 500 Index (SPX) stocks that have performed the best during the week of Thanksgiving over the past 10 years. Specifically, the equity has averaged a gain of roughly 3.5% during Thanksgiving week, with an impressive 80% positive return rate. Another lift of this magnitude would put the shares near $281 -- into record-high territory.

Digging deeper, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the blue chip with a 10-day put/call volume ratio of 1.79, ranking in the 93rd annual percentile. This suggests that during the past two weeks of trading, puts have been purchased over UNH calls at a faster-than-usual clip. An unwinding of pessimism in the options pits could help the Dow stock extend its long-term ascent.

Lastly, short-term options are attractively priced right now, from a historical volatility perspective. This is according to the security's Schaeffer's Volatility Index (SVI) of 21%, which sits in the 29th percentile of its annual range. In other words, muted volatility expectations are being priced into short-term contracts.

 

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