UNH Analysis

UnitedHealth Group Inc. (UNH)

Update 1/11/2018: UNH turned to a negative trend, signaled by the Fisher Transform metric, and I exited for a loss. The price peaked the day after I entered the position and stood slightly above the lower boundary of the zone of maximum profit at my exit.

Shares declined by 2.9% over five days, or a -130% annual rate. The options position produced a -10.7% loss for a -778% annual rate.


I have entered a short iron condor spread on UNH, using options that trade for the last time 14 days hence, on Jan. 19. The premium is a $2.60 credit and the stock at the time of entry was priced at $228.07.

I made the decision to enter the trade in my account based on the Fisher transform metric, the recentness of the Fisher signal and the presence of room for the price to move..

The profit zone for this position is between $237.60 on the upside and 215.10 on the downside.

UNH publishes earnings on Jan. 16 before the opening bell.

Implied volatility stands at 23%, which is 2.4 times the VIX, a measure of the volatility of the S&P 500 index.

UNH’s IV stands in the 77th percentile of its annual range and the 79th percentile of its most recent broad movement.

The price used for analysis was $227.85.

Premium: $2.60 Expire OTM
UNH-iron condor Strike Odds Delta
Calls
Long 242.50 91.3% 9
Break-even 237.60 81.7% 20
Short 235.00 75.0% 27
Puts
Short 222.50 69.2% 29
Break-even 215.10 86.5% 12
Long 212.50 89.4% 10

The premium is 29.7% of the width of the position’s wings.

The risk/reward ratio is 2.8:1.

The zone of profit in the proposed trade covers a $2.60 move to the upside and a $7.40 move to the downside. The biggest immediate move after each of the past four earnings announcements was $10.69, and the average was $3.44. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.29.

Over the past four earnings announcements the price has closed the first post-earns session higher than the pre-earns close three times.

The break-even probabilities applied to the past four post-earnings moves show a 61.3% probability of the price rising while contained within the boundaries of the profit zone and a 21.6% probability of it falling while remaining profitable

Options analysis puts the expected move covering 85% of occurrences at $7.23, within to the downside but not the upside.

The bid/ask spread was 11.9%.

Decision for my account: I entered a position on UNH.

By Tim Bovee, Portland, Oregon, Jan. 5, 2018

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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