Interesting June Stock Options for UNH

May 12 2014, 11:41am CDT | by

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is UnitedHealth Group Inc (NYSE: UNH). So this week we highlight one interesting put contract, and one interesting call contract, from the June expiration for UNH.

The put contract our YieldBoost algorithm identified as particularly interesting, is at the $75 strike, which has a bid at the time of this writing of 82 cents. Collecting that bid as the premium represents a 1.1% return against the $75 commitment, or a 8.7% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Click here to find out the Top YieldBoost UNH Puts »

Selling a put does not give an investor access to UNH’s upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless UnitedHealth Group Inc sees its shares decline 3.6% and the contract is exercised (resulting in a cost basis of $74.18 per share before broker commissions, subtracting the 82 cents from $75), the only upside to the put seller is from collecting that premium for the 8.7% annualized rate of return.

Interestingly, that annualized 8.7% figure actually exceeds the 1.4% annualized dividend paid by UnitedHealth Group Inc by 7.3%, based on the current share price of $77.64. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to fall 3.56% to reach the $75 strike price.

Always important when discussing dividends is the fact that, in general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of UnitedHealth Group Inc, looking at the dividend history chart for UNH below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 1.4% annualized dividend yield.

Turning to the other side of the option chain, we highlight one call contract of particular interest for the June expiration, for shareholders of UnitedHealth Group Inc (NYSE: UNH) looking to boost their income beyond the stock’s 1.4% annualized dividend yield. Selling the covered call at the $79 strike and collecting the premium based on the $1.06 bid, annualizes to an additional 10.8% rate of return against the current stock price (this is what we at Stock Options Channel refer to as the YieldBoost), for a total of 12.3% annualized rate in the scenario where the stock is not called away. Any upside above $79 would be lost if the stock rises there and is called away, but UNH shares would have to advance 1.6% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 2.9% return from this trading level, in addition to any dividends collected before the stock was called.

Click here to find out the Top YieldBoost UNH Calls »

The chart below shows the trailing twelve month trading history for UnitedHealth Group Inc, highlighting in green where the $75 strike is located relative to that history, and highlighting the $79 strike in red:

The chart above, and the stock’s historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the June put or call options highlighted in this article deliver a rate of return that represents good reward for the risks. We calculate the trailing twelve month volatility for UnitedHealth Group Inc (considering the last 251 trading day UNH historical stock prices using closing values, as well as today’s price of $77.64) to be 20%.

In mid-afternoon trading on Monday, the put volume among S&P 500 components was 651,182 contracts, with call volume at 1.19M, for a put:call ratio of 0.55 so far for the day. Compared to the long-term median put:call ratio of .65, that represents very high call volume relative to puts; in other words, buyers are preferring calls in options trading so far today.
Find out which 15 call and put options traders are talking about today./>

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Gambia on high alert for Ebola outbreak
Banjul, Aug 22 (IANS) Gambia's ministry of health and social welfare said Thursday that it is on high alert for a possible Ebola outbreak in the country and are taking preventive measures to tackle the disease.
 
 
Young Europeans less informed about 'legal highs': Survey
Brussels, Aug 22 (IANS) Young Europeans are less informed about "legal highs" and the effects of drugs compared to a few years ago, a survey said.
 
 
Two US Ebola patients released from hospital
Washington, Aug 22 (IANS) Two US aid workers who contracted the Ebola virus while treating patients in west Africa have been discharged from the Emory University Hospital in Atlanta, the hospital said Thursday.
 
 
US doctor with Ebola to be released from hospital
Washington, Aug 21 (IANS) An American doctor who contracted the Ebola virus disease while treating patients in West Africa will be discharged from a US hospital Thursday, the aid group he worked for said.
 
 
 

Latest from the Network

Rihanna finds Vince Vaughn sexy
Los Angeles, Aug 22 (IANS) Singer Rihanna thinks actor Vince Vaughn is the sexiest man alive. The 26-year-old, who is rumoured to have reunited with former boyfriend Drake, is attracted to the "Wedding Crashers" actor...
Read more on Celebrity Balla
 
UN Security Council highlights early warning in conflict prevention
United Nations, Aug 22 (IANS) The UN Security Council Thursday highlighted the importance of early warning mechanisms in preventing and ending armed conflicts, calling for efforts toward cooperation with regional and...
Read more on Politics Balla
 
Pete Wentz welcomes son
Pete Wentz has become a father again. The Fall Out Boy bass player, 35, and his girlfriend Meagan Camper welcomed a baby boy - their first child together - into the world on Wednesday (08.20.14) in Los Angeles and have...
Read more on Celebrity Balla
 
Two killed in fresh Israeli airstrike on Gaza
Gaza, Aug 22 (IANS) A fresh Israeli airstrike on Gaza Strip killed two Palestinians and wounded three others Thursday night, authorities said. The airstrike hit the central Gaza Strip town of Deir el-Ballah, raising...
Read more on Politics Balla
 
Madonna's used lingerie to go on auction
Los Angeles, Aug 22 (IANS) A collection of memorabilia related to Madonna will go under the hammer Nov 7, courtesy Julien's Auctions of Beverly Hills. Up for grabs items include the lingerie the "Material Girl" singer...
Read more on Celebrity Balla
 
Gambia on high alert for Ebola outbreak
Banjul, Aug 22 (IANS) Gambia's ministry of health and social welfare said Thursday that it is on high alert for a possible Ebola outbreak in the country and are taking preventive measures to tackle the disease. Modou...
Read more on Business Balla
 
Rihanna obtains restraining order
Rihanna has obtained a restraining order against a man who was allegedly lurking outside her house last week. The unidentified gentleman was caught hanging around her Hollywood Hills home in California for three hours...
Read more on Celebrity Balla
 
Kim Kardashian gets parental advice from sister Kourtney
Kim Kardashian asks her sister Kourtney for parenting advice. The 35-year-old reality TV star - who has Mason, four, and Penelope, two, with her partner Scott Disick - admits the 33-year-old beauty turns to her for...
Read more on Celebrity Balla
 
Britney Spears 'fed up' of father's control
Britney Spears is allegedly ''fed up'' of her father controlling her finances. The 32-year-old singer's personal and professional affairs have been controlled by her dad Jamie Spears and Andrew Wallett since her...
Read more on Celebrity Balla
 
Ciara is 'humiliated' after fiancé's affair
Ciara feels ''humiliated'' following allegations her fiancé Future cheated on her. The 'I'm Out' singer is determined to keep a low-profile after learning her beau, with whom she has three-month-old son Future Jr., had...
Read more on Celebrity Balla