Options Traders Cheer, Jeer UnitedHealth Group Inc. (UNH) Rally

How UnitedHealth Group Inc.'s post-earnings pop is impacting yesterday's traders

by

Published on Oct 16, 2014 at 10:21 AM
Updated on Apr 20, 2015 at 5:09 PM

UnitedHealth Group Inc. (NYSE:UNH) reported better-than-expected third-quarter earnings this morning, and the shares have responded -- up 4.5% to trade at $85.88. This is good news for some of yesterday's options traders, and bad news for others.

Jumping right in, UNH options changed hands at 2.5 times the typical daily pace yesterday. Also, the stock's 30-day at-the-money implied volatility spiked 14.8% to 31%, signaling strong demand for short-term strikes.

In particular, traders targeted the October 80 put. Activity was roughly even between the bid and ask sides, suggesting selling and buying activity, respectively. What's more, open interest rose overnight, making it safe to assume new positions were initiated -- a theory confirmed by data from the International Securities Exchange (ISE).

Yesterday's put sellers are likely cheering today's strong price action, as their goal is for UNH to maintain its perch atop the strike through tomorrow's close, when the front-month options expire. Additionally, in the wake of this morning's scheduled event, implied volatility on the put has plunged 6.2%, making the options less expensive to buy back. However, the buyers -- who want the stock to finish the week below $80 -- are in bad shape; delta on the put has dropped to negative 0.049 from negative 0.30 at Wednesday's close, suggesting a decreased probability of an in-the-money finish at expiration.

From a wider perspective, UnitedHealth Group Inc. (NYSE:UNH) has had a strong year. Thanks in part to this morning's rally, the shares are up nearly 14% in 2014.


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