Why Options Are Bullish on 2 Health Insurers
Trading has been bullish in WellPoint Health Networks and Health Net since early Friday morning, as the rumor mill goes into overdrive.
Both health insurers are up in an ugly tape, though the option activity is much greater in WellPoint. OptionMonster.com's real-time systems detected 7,300 calls trading in the first 45 minutes of the session, with the June 45 strike attracting the most attention. More than 4,500 contracts changed hands, although a purchase of 2,628 contracts for $0.48 accounted for most of the activity.
WellPoint rose 1.56 percent to $55.30 in afternoon trading, while Health Net climbed 2.5 percent to $26.39. The initial buzz was that Health Net was the takeover target.
Health Net is a more thinly traded name, but buyers snapped up more than 1,771 June 27.50 calls for $0.30 to $0.35. Overall volume in the name is seven times greater than average.
Regardless of the rumors, there seems to be a bullish pattern in the sector. Yesterday we saw call action in Aetna , which is also higher today. Other names such as UnitedHealth , Cigna , and Humana are up as well.
Overall option volume in the health-care service group is about 38 percent greater than average so far today. Call buying is dominating the activity, and those puts that do trade have largely been sold — all of which paints a bullish picture for the group.
Najarian is long WLP calls.
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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.