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Humana Stock Breakout Sparks Put Selling

Josh Selway

Humana Inc (NYSE:HUM) shares have been skyrocketing since skimming the $250 level early last month, last seen at $316.70 -- a roughly 27% rise. One options trader is looking to make a quick buck by betting on HUM stock holding these gains through the end of this week, since data from today's trading seems to suggest one speculator sold to open 3,815 November 315 puts for $1.68.

If that's the case, the trader would keep the entire premium collected of roughly $640,920 (premium paid * number of contracts sold * 100 shares per contract) if HUM holds above $315 by the close this Friday, Nov. 15, when the contracts expire. To put the size of the trade in perspective, peak open interest of just 1,634 contracts is at the November 265 put.

Taking a broader view on options data for Humana, put open interest roughly doubles call open interest among options expiring within three months, based on the Schaeffer's put/call open interest ratio (SOIR) of 1.95. This reading ranks in the 86th annual percentile, so such a put-skew is rare for HUM. Interestingly, the Schaeffer's Volatility Index (SVI) of 23% would suggest it's a better time to buy premium than sell it, since it ranks in the low 19th annual percentile -- showing relatively low premiums at the moment.

Going back to the charts, HUM's breakout -- helped in part by last week's impressive earnings release and rosy full-year outlook -- has taken it past previous resistance in the $300-$310 range and a series of lower highs from the past year, putting its year-to-date gain at nearly 11%. All traders should note the shares' 14-day Relative Strength Index (RSI) of 79, showing they're firmly in overbought territory, possibly explaining the weak price action today.

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