UnitedHealth shares are doing something unusual ahead of earnings

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The only thing more expensive than health insurance is perhaps the costs of insuring shares of health insurers. Case in point: UnitedHealth Group, which reports earnings Tuesday.
Implied volatility is running at twice realized volatility ahead of the October 13 quarterly earnings release. In other words, options prices - the cost of insuring the underlying stock - are expensive, which sets up well for short premium strategies.
In the case of UnitedHealth shares, traders can sell November premium to cut the cost of a longer-dated January call by more than half. UnitedHealth heads into Tuesday's report with much of the damage from its prior missteps already priced in. While rising healthcare costs always remain a headwind, management's 13% to 16% EPS growth target looks achievable. The stock has basically been flat over the last five years.
By the way, according to the company, 90% of United's 52 million customers worldwide are in the U.S. By its own statistics, the company covers about 12% to 13.5% of the U.S. population.
Growing enrollment is critical to EPS growth, but so too is underwriting margin. In the managed care and health insurance business, underwriting margin represents the core operational profitability generated directly from managing healthcare risk. It measures the financial return an insurer achieves strictly from collecting premiums and managing medical care. On the enrollment side, ACA marketplace-driven enrollment appears poised to decline, a headwind for revenue in a segment that had been a growth driver. Fortunately, it's a smaller piece of the enterprise than Medicare and Commercial. Commercial fee-based enrollment grew ~2.9% YoY between 2024 and 2025, while total Medicare enrollment grew 4.5%. The commercial segment growth may not look impressive as a headline number, but given the U.S. workforce grew ~1.4% over the same period, United appears to be gaining market share.
At 17 times forward earnings, and with free cash flow at 5.7% of enterprise value and 6.5% of market cap, the stock isn't priced for any recovery. On the options side, the market is implying 40% volatility for a stock that's been realizing 20%. Granted. The 40% number captures this week's earnings, and it's likely elevated because the stock has had a couple of eye-watering earnings moves in the past 8 reported quarters. In January, the stock fell almost 20% following earnings, and April 2025 saw a similar sharp decline.
As it stands, UNH is about 12-13% below the midpoint of the two-year high and low. The stock has traded lower in five of the last 8 earnings. Current options prices imply a 6.5% earnings move, according to Cboe LiveVol data. That's the second highest implied move in almost two years.
The trade?
Sell the November 340/420 strangle to help finance the purchase of the January 2027 400 call. Buying the Jan 400 call costs $18.20. Selling the Nov 420 call at $5.80 and the Nov 340 put at $4.80 brings in $10.60, for a net debit of about $7.60, cutting the call's cost by roughly 58%. If UNH finishes November between 340 and 420, both short legs expire worthless and the January call is held for $7.60, with a breakeven of $407.60 at January expiration. A rally through 420 is covered by the long 400 call. The real risk is below: a close under 340 means buying shares there, for an effective basis near $347.60 including the debit.
- Buy 1 UNH Jan 2027 400 call $18.20 debit
- Sell 1 UNH Nov 420 call $5.80 credit
- Sell 1 UNH Nov 340 put $4.80 credit
- Net debit ~7.60 ($760 per spread, as each spread represents 100 shares)
Disclosures: Tidal owns/holds all the securities mentioned in the article.
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