UNH Analysis

7/25/2015: UNH turned against my position, and so I exited the puts early, on J8l7 23, and allowed the calls to expire on July 25.

Shares declined by 5.2% over nine days, or a -212% annual rate. The otpions produced a -46.4% loss on debit, for a -1,880% annual rate.

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The managed health care company UnitedHealth Group Inc. (UNH), headquartered in Minnetonka, Minnesota, publishes earnings on Thursday before the opening bell.

[UNH in Wikipedia]

UNH

Ranges

Click on chart to enlarge.

UNH at 10:53 a.m. New York time, 30 days hourly bars

Implied volatility stands at 25.3%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. UNH’s volatility stands in the 73rd percentile of its most recent rise.

I shall use the JUL4 weekly series of options, which trades for the last time nine days hence, on July 24.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	130.23	135.20	125.20	129.54
Lower	120.29	115.32	117.81	120.98
Gain/loss	4.0%	7.9%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade


Iron condor, short the $130 calls and long the $132 calls,
short the $120 puts and long the $118 puts,
sold for a credit and expiring July 25.
Probability of expiring out-of-the-money

JUL4	Strike	OTM
Upper	130	81.3%
Lower	120	77.4%

The premium is $0.50, which is 25% of the width of the position’s wings.The stock at the time of purchase was priced at $125.10.

The risk/reward ratio is 3:1.

The zone of profit in the proposed trade covers a $5 move either way. The biggest immediate move after each of the past four earnings announcements was $4.28, and the average was $3.14.

Decision for My Account

I've opened a position in UNH as described above.

-- Tim Bovee, Portland, Oregon, July 15, 2015

References

My volatility trading rules can be read here.


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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.

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