One investor is using options to wring profits out of UnitedHealth as the managed-care giant continues to muscle its way higher.
optionMONSTER's tracking systems detected the purchase of about 1,800 July 62.50 calls for $5.17 and the sale of a matching number of August 65 calls for $3.50. Volume was below open interest at the lower strike, indicating that an existing short position was closed and rolled to the higher strike.
The investor probably owns UNH and is using covered calls to earn income and manage risk. He or she previously was on the hook to sell shares for $62.50 but yesterday's transaction raised that price to $65. The trader paid $1.67 for the right to make that additional $2.50 and committed to another month in the position, during which they have downside risk. (See our Education section)
UNH rose 2.10 percent to $67.56 and is up 25 percent so far this year. The stock has been working its way higher since breaking out of a 12-month consolidation pattern in April. Earnings have mostly beaten estimates, and it received another boost over the weekend when Barron's said it will benefit from the rollout of Obamacare.
Yesterday's short-call roll more closely resembles a fixed-income trade than an equity investment because it has limited profits with moderate downside risk. In addition to the premium earned from selling the contracts, he or she also stands to collect the company's 1.7 percent dividend yield.
Total option volume was 4 times greater than average in the session.
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