Option Trade of the Week – United We Fall

January 17, 2024

Dear [[firstname],

It could also be a bit late, however Happy New Year! I have not despatched a problem for some time as a result of the credit for our weekly trades weren’t shut sufficient to my goal entry costs. As you already know, I can’t ship a problem with a commerce you don’t have any probability of coming into. This week, nonetheless, the credit score is greater than after I despatched the commerce to our premium subscribers, which means your most revenue is now better.

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I stay up for having you be part of within the enjoyable and income! Now on to the commerce…

United We Fall

Earnings season began this week, although the variety of stories was restricted. Big banks dominated the headlines, however I did not see something tradeable there. And I used to be on the lookout for a bearish play to diversify a portfolio that can be all put spreads after this coming Friday.

So, I went with an organization that is larger – by market cap – than any financial institution: UnitedWell being Group (UNH), The firm reported on Friday, beating expectations for each income and revenue. But a key metric – the medical price ratio – got here in effectively above estimates. And that proved to be UNH’s undoing, because the inventory slumped 3.4% on Friday.

UNH has a half-trillion-dollar market cap, so it will get quite a lot of analyst protection. But oddly, there wasn’t a peep from the analyst neighborhood on Friday – no rankings adjustments and no goal worth strikes. Perhaps they have been mulling over their overly bullish stance towards the inventory.

According to Yahoo! Finance, all 22 ranking analysts contemplate UNH a purchase or sturdy purchase. The common goal worth is round $600, which is 15% above Friday’s shut and seven% above the inventory’s all-time excessive, set in October 2022. And it isn’t like UNH set the world on hearth in 2023. In reality, the inventory closed the 12 months a couple of bucks decrease, Maybe we’ll begin seeing some analysts ease again on the throttle and mood their targets and rankings, which might put some strain on the inventory.

The worth drop on Friday pulled the shares under each their 20-day and 50-day transferring averages. For the technical purists, the 20-day (blue line) crossed bearishly under the 50-day (pink line) on the finish of final 12 months.

I’ve additionally famous an fascinating sample with UNH. Whatever the inventory does the day after earnings tends to be the trail for the subsequent a number of weeks. After the previous two earnings stories, the inventory gained after earnings and continued to be greater by way of the next 5 weeks. The two quarters earlier than that, it was the alternative story – decrease the day after earnings and 5 weeks after earnings. So, if historical past holds, UNH might discover some tough sledding for the subsequent few weeks. Plus, it should overcome its short-term transferring averages, that are each headed decrease.

This week’s bearish name unfold has a brief strike on the 540 stage, which is above each the 20-day and 50-day transferring averages. It additionally sits in an space the place the inventory has struggled to constantly keep above. Note that it is a 10-point unfold as a result of that’s the strike increment within the 16Feb collection. We’re going with the month-to-month collection as a result of UNH’s weekly choices have poorer liquidity. Thus, these spreads would require extra shopping for energy, as famous under.

Option Trade of the Week – United We Fall 3

If you agree that the inventory will proceed to wrestle after its earnings stoop, contemplate the next credit score unfold commerce that depends on UNH staying under $540 (inexperienced line) by way of expiration in 5 weeks:

Buy to Open the UNH 16 Feb 550 name (UNH240216C550)
Sell ​​to Open the UNH 16 Feb 540 name (UNH240216C540)

for a credit score of $2.20 (promoting a vertical)

Option Trade of the Week – United We Fall
Option Trade of the Week – United We Fall 4

This credit score is $0.10 lower than the mid-point worth of the unfold at Friday’s $521.51 shut. Unless UNH falls sharply on the open on Tuesday, you must be capable of get near that worth.

The fee on this commerce must be not more than $1.30 per unfold. Each unfold would then yield $218.70. This commerce reduces your shopping for energy by $1,000, making your web funding $781.30 per unfold ($1,000 – $218.70). If UNH closes under $540 on Feb 16, the choices will expire nugatory and your return on the unfold could be 8% ($218.70/$781.30).

Testimonial of the Week

I’ve been a subscriber for a few 12 months. I autotrade in 2 totally different accounts, all of your methods. I learn all the pieces you write on Saturdays. I like your happiness ideas and all the pieces else. I normally don’t talk in any respect however I needed to let you know how effectively my accounts with you’re doing in comparison with all the pieces else. You are superior. Keep up the great work. Thank you. – Maya

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Happy buying and selling,

Jon L

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