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Options: Good Prognosis for UnitedHealth

Jud Pyle CFA

Significant call activity hit the tape in UnitedHealth Group(UNH Quote) during the first hour of trading today. We have seen bullish activity in health care stocks this week and at least one investor seems to share that sentiment today.

One investor bought 7,500 July 25 calls and simultaneously sold 15,000 July 30 calls at $1.35 per spread, with the stock trading at $26.85. Current open interest at the July 25 call strike is just two contracts, while the July 30 calls are home to current open interest of 397.

As I highlighted in this morning's Sidewinder report on ONN.TV, the investor could make a maximum profit of $3.65 if the stock reaches $30, but will lose money if the stock rises higher than $33.65, which is the strike of the short call plus the maximum profit of the spread.

In afternoon trading, UnitedHealth shares have climbed 80 cents or about 3% to $27.10. Today's rally (and bullish options activity) could be tied to the company's morning announcement that it plans to release a new report on ways to achieve federal health care cost savings as part of health reform policies this afternoon. The Minnetonka, Minn., company spent $1.5 million lobbying in the first quarter, according to the report. The company's stock is up more than 60% since hitting a 52-week low of $16.35 on March 5.

Big call option activity in UnitedHealth does not necessarily mean that investors should run out and buy the shares. However, it is noteworthy that we're seeing bullish activity ahead of health care reform changes. At least one investor could be betting that UnitedHealth will close right around $30 come July expiration (if not before).

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.