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Friday, April 12, 2024

Bull foresees healthy rally for UnitedHealth Group

Today’s tickers: UNH, USO, MNKD, POT, X, MCD, PALM, S & JPM

UNH – The diversified health and well-being company has experienced a share price decline of 3.5% to $26.12. Despite the erosion in the price of the stock today we noticed a bullish play in the July contract. One investor looks to have sold 10,000 puts at the July 24 strike price for a premium of a dollar apiece in order to finance the purchase of 10,000 calls at the higher July 27 strike for 1.36 each. The net cost of the transaction amounts to 36 cents and yields a breakeven point at $27.36. In order to profit by expiration, shares of UNH would need to rally by approximately 5%. – UnitedHealth Group, Inc.

USO – Shares have remained relatively flat today at $37.37 and we observed a mixture of bullish and bearish plays on the fund. Bullishness came in the form of a calendar spread initiated by one investor looking for significant upside on the stock by expiration in October. The spread involved the sale of 10,000 calls at the in-the-money July 37 strike price for 2.45 apiece against the purchase of 10,000 calls at the higher October 42 strike for 2.25 per contract. The trader looks to have originally bought the calls at the July 37 strike on May 28th for an average premium of 1.90 each. Today he reeled in profits of 55 cents by selling the calls for 2.45. He was effectively able to reduce the cost of rolling his position forward to the October 42 strike to just 1.70 apiece. This individual will amass profits on the bullish stance if shares can rally 17% to the breakeven point at $43.70 by expiration. In contrast to such medium-term bullishness, another trader took a bearish stance in the nearer-term July contract. This individual looks to have sold 2,000 calls at the July 38 strike price for 1.85 each in order to purchase 2,000 puts at the same July 38 strike for a premium of 2.50. The net cost of shedding calls to get long of puts amounts to 65 cents and yields a breakeven point to the downside at $37.35. Shares of the USO would need to fall more than 2 cents from the current price in order for this bear to begin to amass profits on the reversal. – United States Oil Fund LP

MNKD – The biopharmaceutical company’s shares have rallied sharply by more than 15.5% to $8.17 today after the firm announced that it has commenced clinical development of a next-generation inhalation system. The system reportedly optimizes the delivery of drug powders based on the proprietary Technosphere technology platform. MNKD’s inhalation system is indicated for such therapeutic proteins as the investigational ultra rapid acting insulin, AFRESA Inhalation Powder. Option investors were seen banking gains on the bullish movement in the stock. The June 7.5 strike price saw some 2,600 in-the-money calls sold for 1.15 apiece while the higher June 10 strike had 1,200 calls sold for 35 cents each. Further along at the July 7.5 strike price, 2,400 in-the-money calls afforded a premium of 1.38 per contract to traders who sold the options. Option implied volatility on MNKD began the trading day at 110% but has since eroded down to 91%. – MannKind Corporation

POT – The fertilizer and feed products company’s shares are lower by more than 1.5% today to stand at $111.50. Bearish investors were seen bracing for continued downward movement in the stock through expiration in July. Some 15,000 protective puts were purchased at the July 95 strike price for 3.69 apiece. Pessimistic traders long the puts will begin to amass profits to the downside given declines of 18% in the stock. These individuals begin to amass profits at the breakeven point located at $91.31. Further evidence of bearishness was the sale of 2,000 in-the-money calls at the July 110 strike price for a premium of 9.68 apiece spread against the purchase of 2,000 puts at the lower July 105 strike for 7.00 each. The investor who enacted this trade receives a net credit of 2.68. The 2.68 pocketed will grow as additional profits to the trader if shares decline below $105.00 by expiration. Option implied volatility on the stock rose up to 65% today from Friday’s average volatility reading of 57%. – Potash Corporation of Saskatchewan, Inc.

X – The steel producer’s shares have declined more than 5.5% to $34.20. Options activity of interest on the stock involves the short sale of 15,000 puts at the October 27.5 strike price for a rich premium of 2.97 per contract. The investor who initiated the short sale receives the 2.97 premium and bears the risk that shares of the underlying are put to him by expiration. He will pocket the premium without further obligations at expiration in the event that shares of the steel magnate remain higher than $27.50. Shares would need to fall approximately 20% from the current price in order for the put options to land in-the-money. Elsewhere, a bearish investor was seen writing 1,600 calls short at the July 39 strike price for a premium of 1.60 apiece. The trader will retain the full premium if shares fail to recover up through $39.00 by expiration next month. – United States Steel Corporation

MCD – Shares of the McMuffin-maker have slipped more than 2% to $58.52 today despite reports that McDonald’s global same-store sales increased 5.1% in May. The MCD ticker symbol edged onto our ‘most active by options volume’ market scanner after a chunk of put options traded in the December contract. It appears that one investor has sold 10,000 puts short at the December 50 strike price for which he received 2.00 per contract. He enjoys the 2.00 in premium for writing the puts today and stands ready to have shares put to him at an effective price of $48.00 apiece should the puts land in-the-money by expiration. The stock would need to decline by about 15% from the current price for the puts to land in-the-money. – McDonald’s Corporation

PALM – It would appear that it wasn’t just Palm’s new Pre that went on sale over the weekend. The selling has expanded to the company’s share price so it would seem with a double-digit decline to $11.64 at around lunchtime. Last week our market scanners sensed investors banking on a not so successful launch given the proliferation of put trading on the stock. In the event the lines outside of Sprint stores was not nearly as newsworthy as those associated with Apple and AT&T stores at the time of the launch of the iPhone. Analysts might be raving about the on-target volume of sales, but when the average store has only 30 phones to sell, one can see the market’s disappointment when customers are turned away without a box of goodies. Option implied volatility came off around 10% to 105% after the weekend launch. – Palm, Inc.

S– The only notable option activity in carrier, Sprint after the Palm Pre went on sale was what appeared to be the closing leg of a previously bullish call spread. Some weeks ago we noted heavy August expiration activity between the 4.0 and 6.0 strike prices where sizeable bullish activity saw investors reduce the cost of taking long positions on the stock by selling equal amounts of higher strike calls against owning the lower strike. We also noted plenty of profit-taking on such positions of late. However, today’s heavy volume at the August 4.0 strike saw 10,000 calls sold at 1.25 in isolation and likely represents an exit from just one of the legs here. The message being that the rally has lost its legs perhaps after perceived disappointment from opening weekend sales of the Pre. This investor is closing the bullish 4.0 leg of the trade, which is significantly in-the-money with Sprint Nextel’s shares trading down 3.5% at $4.93 today. The investor appears content to leave the remaining short 6.0 strike position to erode over the remaining 82 days until expiration. – Sprint Nextel Corp.

JPM – Shares of JPM are higher by about 1% to $35.02 today amid broad declines experienced by the overall market. The stock attracted some bullish option traders looking for significant gains in the share price by July’s expiration. The July 45 strike price saw more than 7,200 calls purchased for an average premium of 21 cents apiece. Investors long of the calls are hoping for an approximate rally of 29% through the breakeven point at $45.12 by expiration.. – JPMorgan Chase & Co.

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