Last week, UnitedHealth Group had a very positive first quarter earnings report that exceeded analysts' estimates on both revenue and earnings per share. In addition, they confirmed and slightly raised their full-year earnings estimate. The recent sharp decline in the stock resulted from the Medicare-for-All proposal espoused by Bernie Sanders. It is likely that UNH (and other managed care companies' stocks) will rebound soon as greater understanding that passing legislation related to this idea is extremely unlikely.
As detailed below, a potential return-on-investment for this position is:
(a) +1.1% absolute return in 38 days (equivalent to a +10.2% annualized return-on-investment) if the UNH stock price is unchanged at $225.30 per share; OR
(b) +3.1% absolute return in 38 days (equivalent to a +30.1% annualized return-on-investment) if the stock closes above the $230.00 strike price.
UnitedHealth Group Inc. (UNH) -- Continuation of Covered Calls Position
The transaction today was as follows:03/27/2019 Bought 100 shares UnitedHealth Group @ $239.44
03/27/2019 Sold 1 UNH April 18, 2019 $230.00 Call option @ $13.39
Note: this was a simultaneous Buy/Write transaction.
04/18/2019 One UNH April 18th $230.00 Call option expired with the UNH stock price at $221.75 (below the $230.00 strike price)
04/22/2019 Sold 1 UnitedHealth Group May 3rd, 2019 $230.00 Call option @ $3.25
Note: the price of UnitedHealth Group stock was $225.30 when this Call were sold and its Implied Volatility was 30.4
Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $22,610.62
= ($239.44 - $13.39) * 100 shares + $5.62 commission
Net Profit:
(a) Option Income: +$1,658.38
= ($13.39 +$3.25) * 100 shares - $5.62 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UnitedHealth Group Inc. shares are unchanged at $225.30 at the May 3rd options expiration): -$1,418.95
= ($225.30-$239.44) * 100 shares - $4.95 commission; OR
(c) Capital Appreciation (If UnitedHealth Group Inc. shares are above $230.00 strike price at May 3rd options expiration): -$948.95
= ($230.00-$239.44) * 100 shares - $4.95 commission
1. Total Net Profit (If UnitedHealth Group stock price is unchanged at $225.30 at the May 3rd, 2019 options expiration date): +$239.43; OR
= (+$1,658.38 option income +$0.00 dividend income -$1,418.95 capital appreciation)
2. Total Net Profit (If UnitedHealth Group stock price is above $230.00 strike price at the May 3rd, 2019 options expiration date): +$709.43
= (+$1,658.38 option income +$0.00 dividend income -$948.95 capital appreciation)
1. Absolute Return (If UnitedHealth Group stock price is unchanged at $225.30 at the May 3rd options expiration): +1.1%
= +$239.43/$22,610.62
Annualized Return: +10.2%
= (+$239.43/$22,610.62)*(365/38 days); OR
2. Absolute Return (If UnitedHealth Group stock price is above $230.00 strike price at the May 3rd options expiration): +3.1%
= +$709.43/$22,610.62
Annualized Return: +30.1%
= (+$709.43/$22,610.62)*(365/38 days)
