Friday, November 2, 2012

Managed Health Care - Vols Rise into Presidential Election

I've included the Symbol Summaries for AET, CI, UNH and WLP below.


Click for Free Trial


This is a simple vol note on the health care industry -- specifically the managed care group. It appears that he election has embedded a risk premium in the front months and I thought it was worth noting.

Let's jump right into it and look at the front two-month skews for AET, CI, UNH and WLP, respectively, below.





We can see across the board the similar shapes of the skews and even more pronounced, the vol diff between the front and second monthly expiries. One mitigating factor for WLP is that earnings are also due out in the Nov cycle (11-7-2012 BMO) -- so that vol "should" be elevated to Dec.  A fair questionis, is it elevated enough?

What's even more interesting is that AET and UNH also have weekly options. Check out the vols for the Nov09 weekly options, Nov monthly options and Dec options respectively, below.

AET: 43.00%, 35.24%, 27.91%
UNH: 40.05%, 32.32%, 24.43%

So we can see the risk premium is embedded in the near-term -- the election near-term (which is 11-6-2012).  There is a monotonic rise in vol from the Nov09 weeklies to the Nov monthlies to the Dec monthlies.

I'll skip the Options Tabs and Charts Tabs as my focus here really is the immediate-term risk in the large managed health care companies and the extra premium attached to the election. Pretty cool... This is a good time to remind of the article I posted about ObamaCare, which you can read here:
Obama Care - Why it Matters to Options, How Vols Explode While Industry Correlation to Market Moves Toward Zero.

This could be another case where an industry specific reaction will dominate any correlation to the overall market. It's also an interesting examination of WLP and its earnings cycle -- is that vol priced correctly?  Feels like maybe the vol event is getting diluted...Ya know... or not...

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment