The only thing more expensive than health insurance is probably the cost of insuring stock in a health insurance company. A case in point is UnitedHealth Group, which reports earnings on Tuesday.
Ahead of the quarterly results release on October 13th, implied volatility is trading at twice the realized volatility. In other words, the option price (the cost of guaranteeing the underlying stock) is expensive and suitable for short premium strategies.
In the case of UnitedHealth stock, a trader could sell the November premium and cut the cost of the long January call by more than half. UnitedHealth heads into Tuesday’s report having already factored in much of the damage from previous failures. Management’s EPS growth target of 13% to 16% appears achievable, although rising medical costs are a constant headwind. The stock price has been essentially flat for the past five years.
For comparison, the company says 90% of United Airlines’ 52 million customers worldwide are located in the United States, and its own statistics say the airline covers about 12% to 13.5% of the U.S. population.
While enrollment growth is essential for EPS growth, so is underwriting margin. In the managed care and health insurance business, underwriting margin represents the core operating income generated directly from the management of medical risk. Accurately measures the economic benefits that insurance companies achieve by collecting premiums and managing health care. On the enrollment side, ACA Marketplace-driven enrollments appear to be trending down, creating a headwind for revenue in a segment that has been a driver of growth. Fortunately, it’s a smaller company than Medicare or Commercial. From 2024 to 2025, commercial rate enrollment increased by approximately 2.9% year over year, and total Medicare enrollment increased by 4.5%. Commercial growth may not be as impressive as a headline number, but given that the U.S. workforce grew by about 1.4% over the same period, United appears to be gaining market share.
United Health, 1 year
The expected P/E ratio is 17 times, free cash flow is 5.7% of enterprise value, and 6.5% of market capitalization, so there is no room for the stock price to recover. On the options side, the market is suggesting a volatility of 40% for stocks that are delivering 20%. Granted. The 40% figure represents this week’s gain, and the number is likely rising, as the stock has had some impressive results over the past eight reported quarters. In January, the company’s stock price fell nearly 20% following the financial results, and a similar plunge was seen in April 2025.
As it stands, UNH is trading about 12-13% below the midpoint between its high and low prices over the past two years. The stock price has declined in five of the past eight earnings results. Current option prices suggest a 6.5% earnings move, according to Cboe LiveVol data. This is the second highest implied move in nearly two years.
What about trade?
Sell 340/420 stocks in November and use the funds to purchase 400 stocks in January 2027. Purchasing 400 January calls costs $18.20. Selling a November 420 call for $5.80 and a November 340 put for $4.80 yields a profit of $10.60 and a net debit of approximately $7.60, reducing the cost of the call by approximately 58%. If UNH ends November between 340 and 420, both short legs will expire worthless, the January call will be held at $7.60, and the breakeven point at January expiration will be $407.60. A rally through 420 is covered by a long 400 call. The real risks are: If you close below 340, you would be buying the stock at around $347.60 on an effective basis including debit.
Buy 1 UNH in January 2027 400 Call $18.20 Debit UNH Sell 1 in November 420 Call $5.80 Credit UNH Sell 1 in November 340 Put $4.80 Credit Net Debit ~7.60 ($760 per spread since each spread represents 100 shares)
Disclosure: Tidal owns/holds all securities mentioned in the article.
All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. This content is provided as part of editorial output for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of a financial or investment advisor.
This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor.
Click here for full disclaimer.
