* Healthcare insurers gain as vote nears
* Aetna, WellPoint, UnitedHealth draw bullish call options
By Angela Moon
NEW YORK, March 19 Options traders are making
bullish bets on health insurers ahead of a possible weekend
vote on a U.S. bill that would overhaul the industry but is not
expected to hurt profits as much as originally predicted.
Traders scooped up call options on Aetna Inc (AET.N),
WellPoint WLP.N and UnitedHealth Group Inc (UNH.N), betting
as much as a 10 percent rally in the stocks over the next
"Typically, traders buy on the rumor and sell on the news.
In this case, it's the complete opposite," said Steve Claussen,
chief investment strategist at online brokerage
OptionsHouse.com in Chicago.
Leading up to the vote, the underlying shares fell on the
prospect of legislation that would restrict profits. But now,
investors have a good idea of what the bill contains and even
if it is passed, "it's quantifiable and it's not uncertain.
This is what the call buyers are banking on," Claussen said.
Although health insurers overall face tighter regulation
with the new overhaul, they got some good news when Democrats
in the U.S. House of Representatives released changes to the
bill on Thursday that delayed their $67 billion, 10-year tax
until 2014. For details see [ID:nN19152167]
Further positive news for the stocks came from Aetna when
it said it expects first-quarter earnings to surpass Wall
Street forecasts and that 2010 results were off to a good
Aetna shares were up 3 percent to $34.42 in midday trade,
and about 18,000 calls were traded versus 7,600 puts in the
Options traders populated July contracts on the underlying
stock with bullish transactions, picking up 1,100 calls at the
July $36 strike for an average premium of $1.90 apiece,
according to Caitlin Duffy, options analyst at Interactive
"Call-buyers at this strike are prepared to profit should
Aetna's shares rally 11.75 percent over the current price to
surpass the effective break-even point on the calls at $37.90
ahead of July expiration," Duffy said.
Other options optimists coveted roughly 4,000 calls at the
higher July $40 strike for a premium of 70 cents per contract,
she added. These investors make money if shares of the
underlying stock surge 20 percent to breach the break-even
price of $40.70 by expiration day.
WellPoint shares rose 2.1 percent to $65.14 and about
28,000 call options traded compared to 7,300 puts.
UnitedHealth gained 1.7 percent to $34.16. In the options
market, 18,000 calls were traded versus 10,600 puts.
"The majority of calls are being bought-on-the-offer, and
based on their call strikes, traders are betting at 7-10
percent rally in these stocks," said Jon Najarian, founder of
Web information site optionMonster.com.
"In other words, traders think that as much as these stocks
have run in the past couple of days, they have more room to run
in the next couple of months."
The Morgan Stanley Healthcare Payor index .HMO was up 2.1
(Reporting by Angela Moon, Editing by Kenneth Barry)