NEW YORK (
is scheduled to announce earnings figures on Jan. 21 before the market opens, and at least one investor traded a call-one-by-two, banking on the shares to at least hold their current levels in the near-term.
Out of the gate, the investor bought one in--the-money Feb. 30 call and simultaneously sold two Feb. 34 calls (out-of-the-money) and paid a net debit of roughly $1.29.
The Feb. 30 calls crossed the tape more than 4,200 times versus open interest of just 423 contracts, while the Feb. 34 calls traded 8,500 times and were home to open interest of 1,200 contracts. The 30-strike calls gained 34 cents on the day to $3.20, while the 34-strike calls climbed 17 cents to $0.95. The majority of the options action in UNH accumulated in these two strikes.
The investor needs UNH shares to close higher than $31.29 but below $36.71 when the options expire in order to make money. The investor achieves maximum profit if the shares close at the short strike of $34 at February expiration.
UNH shares closed up 48 cents to $23.53, up roughly 30% since dropping to $24.70 in October. There has been good reason for the rally in the shares, as the scepter of healthcare reform in Washington has proved to likely be less harmful than the company's bottom line.
With a trailing P/E multiple of less than 11, investors have decided it is worth the risk. Analysts expect the company to announce 73 cents earnings per share next Thursday, and it looks like at least one investor expects the stock to hold or move slightly to the upside after the quarterly report is out of the way. For this reason, a call-one-by-two strategy such as this is moderately bullish.
-- Written by Jud Pyle in Chicago
At the time of publication, Pyle did not have a position in the stock mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."