UnitedHealth Presents Trade Idea With 300% Potential After $13B Medicare Boost
The healthcare industry is seeing gains after the Trump administration announced a major new funding plan.
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Thoughts on UnitedHealth Group
On Monday, the Trump administration's Centers for Medicare & Medicaid Services (CMS) revised its 2027 average payment for private Medicare Advantage plans by 2.48% which comes to $13 billion in additional funding.
The stocks of healthcare insurers servicing that space all took off overnight. Humana (HUM) rallied sharply along with competitors like UnitedHealth Group (UNH) , Elevance Health (ELV) and CVS Health (CVS) .
This 2.48% increase would be far larger than the originally proposed increase of 0.09%. These stocks reacted poorly to that proposal in January and are taking back some of those losses on Tuesday morning.
CMS administrator Dr. Mehmet Oz commented in a press release:
“Medicare Advantage and Part D should work for the people who rely on them.”
Oz then added, “These updates keep coverage affordable and ensure patients get real value from their plans.”
The UNH Chart
Readers will see the sell-off in shares of UNH back in January that occurred in response to the initial proposal made by the Trump administration. That gap-lower move remains less than filled. The shares then developed a rising wedge pattern of bearish reversal that worked quite well, leading the shares to a $256 low in late March.
Now, we see the shares rising on Monday night's news and taking back both their 21-day EMA and 50-day SMA. This gets both portfolio managers and swing traders involved as the stock takes aim at its all-important 200-day SMA as UNH tries to fill the January gap. That line is the upside pivot. We can see that, above in the chart, relative strength has been rising and remains quite robust but has not yet run into technically overbought territory.
Below the chart, the daily MACD is also improving quite dramatically. The histogram of the nine-day EMA has moved above the zero-bound, which is a short-term bullish signal. In addition, though both the 12-day EMA and 26-day EMA are running below zero, the 12-day line has crossed above the 26-day line, which can be a more medium-term positive sign. Keep in mind that UNH will report on April 21.
Trade Idea (Minimal Lots)
This situation might call for a bull call spread. Here's an example:
- Purchase one April 24 (after earnings) $315 (near pivot) UNH call for about $7.25
- Sell (write) one April 24 $325 UNH call for about $4.75
Net Debit: $2.50.
Notes: This trader is not willing to spend a ton of dough on an equity stake. This trader is willing to risk the net debit of $2.50 (max loss) in order to try to win back up to $10.00 for a max profit of $7.50. That would be a max gain of 300%.
Related: Why I'm Fading a 'Ceasefire Rally' as Trump's Iran Deadline Approaches
At the time of publication, Guilfoyle had no positions in any securities mentioned.
