UnitedHealth (UNH) drops on potential Medicare bill

UnitedHealth (NYSE: UNH) shares are in the red today even though a bill that would have reduced Medicare reimbursements to health insurers was defeated in the House of Representatives yesterday. However, shares of UNH are declining this morning with other insurers on news that Congress will likely pass a different bill with slightly smaller cuts next week. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on UNH.

After hitting a one-year high of $59.46 in December, the stock hit a one-year low of $31.49 in May. This morning, UNH opened at $30.30. So far today the stock has hit a low of $30.00 and a high of $30.88. As of 1:25, UNH is trading at $30.70, down 31 cents(-1.0%). The chart for UNH looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bearish hedged play on this stock, I would consider a September .bear-call credit spread above the $35 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in three months as long as UNH is below $35 at September expiration. UNH would have to rise by more than 14% before we would start to lose money. Learn more about this type of trade here

UNH hasn't been above 35 since May and has shown resistance around $34.50 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in UNH.