Obamacare's Legal Win Has These 3 Insurers Soaring

UnitedHealth Group Inc. (NYSE:UNH), CIGNA Corporation (NYSE:CI), and Humana Inc (NYSE:HUM) are gaining ground today on SCOTUS' landmark ruling

Jun 25, 2015 at 2:06 PM
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The U.S. Supreme Court today voted 6-3 to uphold tax subsidies in President Barack Obama's 2010 healthcare law, the Affordable Care Act (ACA) -- also known as Obamacare. The ruling has had a positive impact on a number of insurance issues, with UnitedHealth Group Inc. (NYSE:UNH), CIGNA Corporation (NYSE:CI), and Humana Inc (NYSE:HUM) all trading higher this afternoon.

UNH, for example, is up 3% at $122.70 -- and outperforming its fellow Dow components. This positive price action is nothing new for a stock that's rallied nearly 50% year-over-year, thanks to a lift from its 80-day moving average. The equity could be poised to extend these gains, too, considering it recently pulled back to this rising trendline. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the six other times this signal has occurred over the past three years, UNH has gone on to average a 21-day return of 4.3%, and is positive 80% of the time.

In the options pits, put writers have been making their presence known in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have sold to open 1.96 puts for each one they've purchased over the past two weeks. Today, put volume has popped to two times what's typically seen at this point in the day. UnitedHealth Group Inc.'s weekly 7/2 116-strike put has seen the most action, where it appears new positions are being sold, as speculators bet on $116 to hold as a floor through expiration at next Thursday's close.

CI made headlines earlier this week, after rejecting a $54 billion buyout bid. Today, the shares are 2.3% higher at $169.59, and fresh off a record high of $170.20. Longer term, the stock has been racing up the charts in 2015, boasting a 65% lead. What's more, the security has outperformed the broader S&P 500 Index (SPX) by nearly 23 percentage points over the past month.

Not everyone has climbed on board CI's bullish bandwagon, though. Half of those covering the shares maintain a tepid "hold" rating, while the average 12-month price target of $156.15 stands at a discount to current trading levels. A round of upgrades and/or price-target hikes could help CIGNA Corporation extend its trek into record-high territory.

Finally, HUM, which was temporarily halted not that long ago on a reported buyout bid from Aetna Inc (NYSE:AET), has tacked on 8.6% to linger near $199.98 -- widening its year-to-date advance to 39%. If past is precedent, the stock could be on track to continue its move higher. Specifically, after tagging an M&A-related all-time peak of $219.79 on May 29, the equity pulled back to its 80-day moving average. In the six other times this has happened, HUM has averaged a 21-day gain of 10.3%, and is positive 83% of the time.

Meanwhile, now appears to be an opportune time to sell options on Humana Inc, as opposed to buying them. In fact, the security's Schaeffer's Volatility Index (SVI) of 58% ranks higher than all other readings taken in the past year, meaning its short-term options are pricing in the loftiest volatility expectations of the past 52 weeks.

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