Stock Options Watch: UNH, MYGN, OMPI

UNH – UnitedHealth Group, Inc. – Shares in UnitedHealth and other health insurers rose sharply in after-hours trading on Monday after the U.S. government reversed an earlier decision to reduce a Medicare payment rate and instead offer an increase in the rate. Bullish bets initiated on UnitedHealth ahead of the federal government’s announcement yesterday generated big gains for some traders, with shares in UNH surging 8.4% to $63.95 in the early going today, the highest level since 2005. Open interest in weekly call options on UNH is greatest in the April 05 ’13 $57.5 and $60 strike calls, with more than 1,300 open contracts each. A review of time and sales data from the prior two trading session indicates most of the $57.5 strike calls were purchased ahead of the long weekend at an average premium of $0.39 each, while the $60 strike calls were picked up yesterday for an average premium of $0.17 apiece. The sharp rally in UnitedHealth’s shares since these upside call options were purchased now finds the $57.5 and $60 strike calls changing hands at $5.45 and $3.30 apiece, respectively, as of 11:15 a.m. ET on Tuesday. Traders long the weekly calls ahead of the close on Monday are sitting on big paper profits worth many times the initial premium outlay today. Overall options volume on UnitedHealth on Tuesday morning is approaching 24,000 contracts as of the time of this writing, or roughly three times the stock’s average daily volume. Call options are more active than puts, with the call/put ratio hovering around 1.9 as of 11:20 a.m. in New York.

MYGN – Myriad Genetics, Inc. – Options changing hands on biotechnology company, Myriad Genetics, Inc., this morning suggests one trader is bracing for shares in the maker of molecular diagnostic tests to potentially decline sharply during the next few months. The stock is bucking the broad market trend today, trading down 0.60% at $24.97 as of 11:30 a.m. ET. Shares in Myriad have dropped roughly 10% since the start of 2013. One options player positioning for further declines in the price of the underlying appears to have purchased around 3,000 puts at the July $22 strike at an average premium of $2.14 each within the first 15 minutes of the opening bell this morning. The put buyer may profit at July expiration if shares in MYGN drop 20% from the current price of $24.97 to breach the effective breakeven price of $19.86. Shares in Myriad Genetics last traded below $19.86 back in December of 2011. The company reports third-quarter earnings four weeks from now.

OMPI – Obagi Medical Products, Inc. – Shares in the maker of anti-aging and other skin care products jumped 16.5% today to $22.96, the highest level in more than five years, on reports the company may receive a competing bid above the $19.75 a share deal extended by Valeant Pharmaceuticals International, Inc., two weeks ago. Obagi Medical Products announced in a March 20th press release it had entered into a definitive merger agreement with Valeant. Shares in Obagi are up more than 70% since the beginning of March. Bullish bets initiated on the skin care products maker the day following the announced deal with Valeant are paying off handsomely for some traders today. A review of time and sales data from activity in the April $20 strike calls during the week of March 18th suggests one or more traders snapped up more than 600 of the $20 strike calls back on March 21st for an average premium of $0.10 each. Call buyers who paid $0.10 per contract one day after the deal with Valeant was announced now find the contracts trading at a premium of $2.80 apiece.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

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