Option Witch | As UnitedHealth Stock Crashes, Here's How to Trade the Volatility

$UnitedHealth(UNH)$ shares dropped sharply since mid-April, with a 22.38% single-day drop on April 17 to $454.11. The downward trend continued into May, reaching a low of $308.01 on May 14 — a 48.6% drop from the April peak.

UnitedHealth faces mounting pressure from a criminal Medicare fraud probe, leadership shakeup, and soaring medical costs. With volatility elevated, spread strategies are appropriate for capitalizing on downside risk while managing exposure in a rapidly deteriorating short-term outlook.

UnitedHealth Is Under Criminal Investigation

According to The Wall Street Journal, The Justice Department is investigating UnitedHealth Group for possible criminal Medicare fraud, people familiar with the matter said.

While the exact nature of the potential criminal allegations against UnitedHealth is unclear, the people said the federal investigation is focusing on the company’s Medicare Advantage business practices.

The probe adds to a list of government inquiries into the company, including investigations of potential antitrust violations and a civil investigation of its Medicare billing practices, including at its doctors offices.

UnitedHealth Suspends Annual Forecast

UnitedHealth Group on Tuesday suspended its annual forecast citing higher-than-expected medical costs and said CEO Andrew Witty has decided to step down for personal reasons, effective immediately, sending its shares down nearly 18% on Tuesday. Stephen Hemsley, who served as CEO from 2006-2017, will take over from Witty.

The U.S. health insurance industry has been grappling with increased costs since mid-2023 due to a surge in demand for healthcare services under government-backed Medicare plans for older adults or individuals with disabilities.

In April, UnitedHealth posted its first earnings miss since 2008 and a bleak forecast. The company expects to return to growth in 2026, it said on Tuesday.

UnitedHealth Slashes Outlook After Surprise Earnings Miss

UnitedHealth surprised investors with what its CEO said was an "unusual and unacceptable" quarterly earnings miss, and it lowered its outlook for the full year due to higher-than-expected medical costs, sparking a 22% selloff in shares.

The company's earnings and bleak forecast sent investors to the exits as they were expecting the insurer to maintain its profit outlook on expectations that demand for medical services would be similar to 2024's demand level.

UnitedHealth reported revenue of $109.6 billion for the quarter, short of expectations for $111.6 billion, and earnings of $7.20 per share, also short of expectations.

Health insurance stocks had a rough 2025, hurt by lower government payments, elevated medical costs and public backlash against the sector after the murder of a UnitedHealth insurance unit head, Brian Thompson, late last year.

Thompson's fatal shooting also unleashed a social media storm of patient dissatisfaction and ire over the health insurance industry's practices, adding to the company's woes.

Option Strategy

Here are two structured strategies using near-term options (May 23 expiry) and elevated implied volatility if you have neutral-to-bearish outlook on UnitedHealth:

1. Bear Call Spread

Structure:

• Sell $310 Call

• Buy $315 Call

• Net Credit: $2.46 per contract

  $UNH Vertical 250523 310.0C/315.0C$

Key Metrics:

• Max Profit: $237.5

• Max Loss: -$262.5

• Breakeven: $312.38

• Probability of Profit: 66.28% (1 - 33.72% chance of $310 Call expiring ITM).

  

Rationale:

• Profits if UNH stays below $310.

• Capitalizes on elevated implied volatility (55.51% for $310 Call) and rapid time decay (Theta: -0.665).

2. Bear Put Spread

Structure:

• Buy $305 Put

• Sell $300 Put

• Net Debit: $2.10 per contract

  $UNH Vertical 250523 300.0P/305.0P$

Key Metrics:

• Max Profit: $290 per spread

• Max Loss: -$210

• Breakeven: $302.9

• Probability of Profit: Requires UNH to drop below $305.

  

Rationale:

• Profits if UNH declines below $305.

• Leverages bearish momentum

Key Market Observations:

1. Volatility: Implied volatility for near-term options is elevated (50-65%), favoring premium sellers.

2. Analyst Sentiment: Mixed – mean target price ($492.83) suggests long-term upside, but short-term technicals are weak.

Risks:

• Bear Call Spread risks assignment if UNH surges above $310.

• Bear Put Spread requires precise timing for downside movement.