Coventry Health Net (NYSE: CVH), a managed healthcare organization, is recently trading at $39 in pre-open trading, below its close of $43.

Humana (NYSE: HUM) lowered Q1 and 2008 guidance this morning and Wellpoint (NYSE: WLP), a health benefits company, lowered its full-year financial outlook on March 11.

CVH overall option implied volatility of 40 is above its 26-week average of 30 according to Track Data, suggesting larger price movement.

Health Net (NYSE: HNT), a managed care organization, is recently trading at $31.43 in pre-open trading, below its close of $34.58.

HNT overall option implied volatility of 45 is above its 26-week average of according to Track Data, suggesting larger price risk.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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• The Financial Times reported that the Los Angeles city attorney launched a wide-ranging legal action on Thursday against Health Net Inc (NYSE: HNT), one of California's biggest health insurance providers, accusing the company of defrauding customers by setting illegal policy cancellation targets for its sales agents.

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Health Net Inc. (NYSE:HNT) provides managed health care and other medical coverage to some 6.6 million members in 27 states and Washington, DC. Other services involve managed prescription drug products and managed health care coordination for multi-region employers.

The company had good news for investors earlier in the month, when it backed its full-year EPS outlook of $3.02-$3.06. Analysts had been expecting $3.04. Management also issued Y07 EPS guidance of $3.65, versus $3.55 consensus. The news boosted the stock into a mid-December consolidation "flag" formation. Then, the price popped into a late December flag, in concert with sector-wide gains on the 19th. Equities frequently exit flags moving in the same direction they were traveling when they entered them. In the case of both HNT flags, that's to the upside.

Brokers recommend the shares with two "strong buys," two "buys," nine "holds" and two "sells." Analysts see an 18% growth rate, through the next year. The HNT P/E ratio (17.89), PEG ratio (1.27), Price to Sales ratio (0.45), EPS Growth rate (25.37%), Return on Equity (18.82%) and Revenue per Employee ($1.4 million) compare favorably with industry, sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 400 MidCap Index. Institutional investors hold about 93% of the outstanding shares. Over the past twelve months, HNT has traded between $37.10 and $54.11. If I were to invest, I'd consider a stop-loss of $42.25. Note that the firm is expected to report fourth quarter results in early February.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.