Blue-Chip Healthcare Stock Lands Bull Note on Election Outcome

Puts have gained popularity in the options pits

Assistant Editor
Nov 11, 2020 at 3:10 PM
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The shares of UnitedHealth Group Inc (NYSE:UNH) are inching lower, down 0.2% at $352.91 at last check, despite Piper Sandler raising its price target to $409 from $385 and maintaining its "overweight" rating. The firm cited the increased chances of the Affordable Care Act being upheld due to the Supreme Court's Texas vs. Azar case, as well as the new President-elect Joe Biden and the potential for a Democratic Senate. However, it's worth noting that the company has ties to conservative organizations lobbying against the bill, and its cash flow is largely driven by self-insured patients.

The equity has been trading in the same region since its early-November bull gap, after which, it posted a fresh record high of $367.95 on Nov. 9. Meanwhile, ahead of the gap the shares benefited from a floor at the $300 mark, aiding the stock toward its now year-to-date gain of 20%. 

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Analysts are overwhelmingly bullish on UnitedHealth stock, with 15 of the 18 in coverage at a "buy" or better rating, with not a single "sell" on the books. Meanwhile, the 12-month consensus price target of $368.58 is a 5% premium to current levels. 

Over in the options pits, however, UNH's 10-day put/call volume ratio of 1.14 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 88% of readings from the past year. This means that puts have been picked up at a much faster-than-usual rate within the past couple weeks. Today, the November 337.50-strike put is the most popular, where new positions are being opened. Should this pessimism begin to unwind, it could send the equity even higher.

Now might not be a bad time to weigh in on these options, either. The stock's Schaeffer's Volatility Index (SVI) of 31% stands higher than just 16% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment. 

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