Humana Inc (HUM) Put Options Stay Hot as Stock Skids

Humana Inc (HUM) is diving on a major Medicare setback

Oct 12, 2016 at 1:46 PM
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Insurance giant Humana Inc (NYSE:HUM) is getting blasted this afternoon, after the government cut the company's Medicare ratings -- potentially impacting reimbursement rates in 2018. In fact, this negative news is overshadowing an upwardly revised 2016 earnings forecast. After being halted earlier, HUM stock was last seen 6.1% lower at $166.69, while its put options are crossing at 18 times the expected intraday rate.

Put open interest on the shares is already at an annual high, totaling 212,639 contracts. And that number should increase, considering intraday put volume ranks in the 99th annual percentile. While longer-term strikes are popular, short-term traders are targeting the October 167.50, which is seeing a mix of buy- and sell-to-open activity, per the International Securities Exchange (ISE). The buyers are hoping HUM will extend its run lower through next week's close, when the option expires, while the sellers are anticipating the stock will bounce back above the strike.

Taking a step back, Humana's Schaeffer's put/call open interest ratio (SOIR) is docked at 2.11, with puts more than doubling calls among options in the front three-months' series. What's more, this ratio outranks four-fifths of all comparable readings from the past year, suggesting a historically pronounced put-skew.

More impressive yet, HUM's 20-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a top-heavy 7.59. In other words, put buying has really picked up, outpacing call purchases by a more than 7-to-1 margin. Two weeks ago, this ratio clocked in at a much more modest 2.81.

Suffice it to say, put buyers are likely reveling in Humana Inc's (NYSE:HUM) sharp skid. Prior to today, though, the insurance stock had largely been trading sideways between $175-$180, right around its year-to-date breakeven mark.

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