NEW YORK Feb 19 A flurry of bearish bets placed
Wednesday in the options for some health insurers caught the eye
of several analysts, who said it appears that someone is banking
on a sizeable drop in their stocks by the end of the week, which
is also when 2015 Medicare payment rates are expected from the
The most aggressive activity occurred in options on
UnitedHealth Group Inc's shares, with a spate of
purchases of puts that would benefit from a drop in the stock.
According to options analytics firm TradeAlert, a trader
bought 2,053 contracts of February puts at a strike price of
$71, which is about 3.5 percent lower than the stock's current
price of $73.55. These contracts will expire on Friday, and it
has been more than two months since the stock has seen that
large a move lower over a two-day period.
The February $72 puts also saw heavy activity, according to
TradeAlert. Volume was brisker than normal.
"Given that other trades are usually 200-300 contracts (in
the stock), this purchase, which was made so close to
expiration, definitely seems to be some sort of speculative move
if there is news coming out," said Randy Frederick, managing
director at Charles Schwab in Austin, Texas.
Options activity in Humana Inc also perked up, with
one of the most active contracts being some weekly February $94
puts that expire Feb. 28, as well as some monthly Feb $92.35
puts that expire on Friday. Both strike prices are substantially
below the stock's $101.98 closing price on Wednesday.
The activity comes ahead of a key government announcement
due as early as this week about next year's expected Medicare
reimbursement rates, a key revenue source for both UnitedHealth
and Humana. It has jolted these stocks before.
Just about one year ago, the stocks took a pounding when
Medicare Advantage plan payment rates were forecast to be cut
under a preliminary proposal from the Centers for Medicare and
Medicaid Services. Humana's shares plunged 6.4 percent in one
day, while UnitedHealth's stock shed 3.7 percent over two days.
The stocks rebounded sharply just over a month later when
the final payment rates did not reflect as large a cut as
Meanwhile, readings of implied volatility, a key component
of options prices, have been rising for both stocks ahead of the
The 30-day at-the-money implied call and put volatilities
for United National Health were at around 23 on
Wednesday, the highest level since before the company's
third-quarter earnings announcement in October, according to
Thomson Reuters data. The level was also higher than ahead of
last year's Medicare rate announcement.
In Humana, the 30-day implied volatility
options as well, up to nearly 40 percent from a day ago and at
the highest level in nearly a year.
As implied volatility rises, options premiums, or prices,
typically follow suit, reflecting the elevated risk to the
seller in the event of an outsized move in the stock.