UnitedHealth Group is set to report its earnings on Tuesday, and traders are taking notice of an unusual trend in its stock behavior. Implied volatility for the company's shares is running at twice the realized volatility, making options prices particularly expensive. This creates an opportunity for short premium strategies, such as selling November premium to cut the cost of a longer-dated January call by more than half.
The stock has been relatively flat over the last five years, but the company's management has set a 13% to 16% EPS growth target, which appears achievable despite rising healthcare costs. UnitedHealth covers about 12% to 13.5% of the U.S. population, with 90% of its 52 million customers worldwide located in the U.S. Growing enrollment and underwriting margin are critical to EPS growth, though ACA marketplace-driven enrollment is expected to decline, posing a headwind for revenue.
On the positive side, commercial fee-based enrollment grew 2.9% year-over-year between 2024 and 2025, while total Medicare enrollment grew 4.5%. The stock is trading at 17 times forward earnings, with free cash flow at 5.7% of enterprise value and 6.5% of market cap. Options prices imply a 40% volatility for a stock that's been realizing 20%, likely due to sharp earnings moves in the past 8 reported quarters.
One potential trade involves selling the November 340/420 strangle to help finance the purchase of the January 2027 400 call. Buying the Jan 400 call costs $18.20, while 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. This strategy cuts the call's cost by roughly 58%, but comes with risks, particularly if the stock closes under 340.