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Options trader wins big on a Super Tuesday health-care bet

Options trader bets big on health care this Super Tuesday
Options trader bets big on health care this Super Tuesday

Health-care stocks are surging after former Vice President Joe Biden's Super Tuesday performance put at ease  investors who had been anxious about the possibility of Sen. Bernie Sanders winning the Democratic presidential nomination. 

That's great news for one options trader, who made a big bet on UnitedHealth snapping out of its recent run of losses.

UnitedHealth was staring at losses of nearly 5% in Tuesday's session but shot higher in after-hours trading as Super Tuesday results showing a strong performance from Biden started rolling in. 

"One of the larger trades that we saw was a purchase of 1,000 of the March 295/300-call spreads. The buyer spent about $0.95 for those. The buyer is obviously making a bet that [UnitedHealth] could rally back to those prior highs that we saw, essentially, before all of this coronavirus concern," Optimize Advisors President Michael Khouw said Tuesday on "Fast Money."

Since each options contract is worth 100 shares of stock, this trade represents a bet of just under $100,000 in premium that UnitedHealth could rise as high as 15% above Tuesday's closing price between now and March expiration, at which time this trader would stand to make as much as $4 per contract. 

In fact, thanks to UnitedHealth's Super Tuesday surge, these contracts are trading for about double what they went for on Tuesday, meaning that this trader has already effectively doubled their money. That is a development that will have both this trader and the health-care space as a whole breathing a sigh of relief. 

"The managed care space is one of the areas in the market that have been concerned about the election, and specifically those that are talking about socialized health care," said Khouw. "But of course, it should be said that there are some other concerns for managed care in the form of coronavirus, although right now, it does seem like that's being discounted pretty heavily."

UnitedHealth was trading 9% higher in Wednesday's session.