Blue Chip Signaling a Bounce

The shares of UnitedHealth Group (UNH) dropped to start the week, due to a rare analyst downgrade. However, if past is prologue, the blue chip’s pullback could be a buying opportunity — and near-term option bulls may want to take note.

On Monday, Sept. 10, UnitedHealth shares retreated in the wake of the aforementioned downgrade, and are now within one standard deviation of their 80-day moving average, after a lengthy stretch above this trendline. Over the past three years, there have been seven similar pullbacks of this kind, after which UNH went on to rebound an average of 4.1% over the subsequent month, and was higher 86% of the time, per data from Schaeffer’s Senior Quantitative Analyst Rocky White.

The Dow stock was last seen 0.3% higher to trade at $261.68. A similar bounce off the 80-day would place UNH around $272.40 — above its Sept. 7 all-time high of $271.16

Traders hoping to speculate on the insurance giant’s near-term trajectory can pick up UNH options at a relative bargain. The equity’s Schaeffer’s Volatility Index (SVI) of 16% is in the bottom 10% of its annual range, suggesting short-term options are pricing in relatively mild volatility expectations at the moment.

Calls have certainly been the options of choice among buyers in the past two weeks. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 10-day call/put volume ratio of 1.94 indicates traders have bought to open nearly twice as many UNH calls as puts in the past 10 sessions. What’s more, this ratio registers in the 80th percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets over bearish lately.