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Humana (NYSE: HUM - option chain) stock is falling today on news that the US Department of Defense selected competitor UnitedHealth (NYSE: UNH) to replace HUM as its main provider in the southern region of the the department's TRICARE program. HUM lost out on a deal with a total potential value of $21.8 billion. 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 HUM.This morning, HUM opened at $28.49. So far today the stock has hit a low of $28.14 and a high of $29.80. As of 11:55, HUM is trading at $28.92, down $1.67 (-5.5%). The chart for HUM looks bullish and S&P gives HUM a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider an August 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 5.3% return in just a month as long as HUM is below $35 at August expiration. Humana would have to rise by more than 20% before we would start to lose money. Learn more about this type of trade here.
HUM hasn't been above $35 since February and shown resistance around $33 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 HUM or UNH.
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