MetLife (MET) is well-positioned in the Life Insurance & Benefits sector and exhibits fundamental momentum that has not been fully priced in by the broader market.
MetLife is backed by its scale, brand power, and experienced leadership team.
Premium and Revenue Growth: In the first quarter, MetLife’s core premiums and fees increased 10%, driven primarily by international and domestic demand. Group benefits increased by 22% in Asia, 20% in Latin America and 15% in the United States. AI unlocks efficiency: While many investors focus on AI companies, they may be ignoring how AI and innovation can help old economy businesses. MetLife is poised to lead the industry in margin expansion (20-25 bps per year) by keeping expense growth well below revenue growth. Earnings power: Consensus forecasts project EPS to grow nearly 25% over the next two years, from an expected $9.94 in FY2026 to $12.40 in FY2028. Approximately 5% of expected EPS growth is expected to come from share repurchases (just under $1.2 billion remaining in the existing share repurchase program). Recent strong sales, strong group life underwriting and a rising stock market are supporting alternative investments. ROE and Capital Management: MetLife Life’s average ROE of 17.2% puts it at the high end of its target range of 15-17%.
Given MetLife’s strong fundamental tailwinds and clear path to higher EPS, I like the September 77.5/87.5/92.5 call spread risk reversal (below), which is structured to either capture further upside or potentially buy the stock near its long-term average of ~$78.
This allows investors to capture MetLife’s upward momentum while reducing immediate downside risk and mitigating the impact of “theta” (also known as “decline”) after MetLife’s recent impressive rally.
Clear Risk, Leveraged Reward: Gain exposure to the upside of MetLife Life Insurance by purchasing at-the-money calls. By selling a call with a higher strike price and a put with a lower strike price at the same time, you can collect a premium that lowers your net cost (debit) and lowers your break-even point. Volatility Mitigation: While a rising stock market and high returns on alternative investments provide a tailwind for MetLife’s stock price, selling Outer Strike helps offset the cost of implied volatility. Also note that the September maturity will capture the gain (the company is scheduled to report on August 6). Option premiums then tend to fall more sharply, a phenomenon sometimes referred to as a post-catalyst “volume crash.” EPS Timeline: Choosing a September expiration not only captures upcoming quarterly earnings reports, but also acknowledges that the market has been volatile lately and captures the majority of September, when volatility has historically been above average.
Trade Management: If MetLife’s stock price spikes, we take the opportunity to “monetize” (i.e., cover) our short interest, possibly rolling up the debit call spread (meaning raising the strike price) or moving it up (in time) and out.
