Potential Walmart Deal Sends Humana Stock Soaring

HUM options traders have been growing bearish

by Patrick Martin

Published on Apr 2, 2018 at 9:40 AM
Updated on Jun 24, 2020 at 10:16 AM

Humana Inc (NYSE:HUM) stock is up 6.1% to trade at $285.25, thanks to a Wall Street Journal report last week saying retail giant Walmart (WMT) was in talks to potentially buy the health insurer. A number of analysts believe the move could be in response to Amazon's (AMZN) push into healthcare. Meanwhile, Jefferies thinks such a deal would make sense for both parties, while Piper Jaffray does not see the fit given Walmart's lack of healthcare footprint. 

Nevertheless, Humana stock has broken through the $280 level that stifled its February breakout attempt. The shares rocketed to a record of $293.35 on Jan. 29, but pulled back to their supportive 50-day moving average, and since then have consolidated between the $260-$275 level. The equity was up 30% year-over-year even before today's jump.

In the options pits, puts have become more popular in recent weeks, despite low absolute volumes. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows HUM with a 10-day put/call volume ratio of 2.30, which indicates long puts have more than doubled calls in the past two weeks. Should Humana stock continue to break out, it could lead to an unwinding of these bearish bets. 

Echoing this, Humana stock's Schaeffer's put/call open interest ratio (SOIR) of 1.71 ranks in the 79th annual percentile. This elevated ranking shows put open interest in contracts expiring within three months is much higher than normal compared to call open interest.

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