Option Bears Blast Humana Inc (HUM) as Regulatory Rumors Swirl

Humana Inc (NYSE:HUM) is lower today, and options volume is accelerated

Jul 19, 2016 at 2:06 PM
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Humana Inc (NYSE:HUM) is sinking with its sector peers, amid reports the Justice Department may be preparing to block Aetna Inc's (NYSE:AET) proposed takeover of the insurance company, as well as Anthem Inc's (NYSE:ANTM) bid to buy CIGNA Corporation (NYSE:CI). In fact, while HUM stock is down 5.8% at $150.36 -- and fresh off a 52-week low of $150.00 -- fellow healthcare stock UnitedHealth Group Inc (NYSE:UNH) has erased all of its early earnings-induced gains. What's more, HUM's options pits are on fire, with volume running at three times what's typically seen at this point in the day.

By the numbers, around 12,000 put options have changed hands, compared to 11,000 call options -- in the 99th annual percentile. Most active is HUM's August 145 put, where it looks like new positions are being purchased. If this is indeed the case, the goal is for HUM to breach the $145 level by front-month expiration at the close on Friday, Aug. 19. This is territory the stock has not explored since February 2015.

More broadly speaking, put buyers have been busy in HUM's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 2.41 ranks in the 83rd percentile of its annual range.

Echoing this put-skewed backdrop is HUM's Schaeffer's put/call open interest ratio (SOIR) of 1.67, which shows that puts nearly double calls among options expiring in three months or less. Plus, it ranks higher than 79% of all comparable readings taken in the past year. In other words, short-term speculators are more put-heavy than usual.

Those purchasing the equity's near-term options are willing to pay a pretty penny, too. For starters, HUM's Schaeffer's Volatility Index (SVI) of 61% rank in the 81st annual percentile, indicating relatively high volatility expectations are baked into the premium on the equity's short-term options. Additionally, HUM's Schaeffer's Volatility Scorecard (SVS) is docked at zero, meaning the options market has overpriced the stock's ability to make big moves over the past year.

On the charts, HUM has shed more than 19% year-over-year. More recently, the stock gapped lower earlier this month -- notching its biggest one-day percentage drop in four years -- when antitrust rumblings first began to swirl. Thanks to today's sell-off, the shares of Humana Inc (NYSE:HUM) are on pace to close at their lowest level since Feb. 9, 2015.

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