March 19, 2010 / 7:30 PM / 8 years ago

U.S. health insurers attract bullish options bets

* Healthcare insurers gain as vote nears

* Aetna, WellPoint, UnitedHealth draw bullish call options

By Angela Moon

NEW YORK, March 19 (Reuters) - 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 couple months.

“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 start. [ID:nN19244950]

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 market.

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 Brokers Group.

“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 percent. (Reporting by Angela Moon, Editing by Kenneth Barry)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below