The Wall Street Journal-20080214-UnitedHealth Grabs Attention

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UnitedHealth Grabs Attention

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Premiums for UnitedHealth Group puts surged just ahead of news of legal action against the health-insurance giant.

At a midday press conference, New York Attorney General Andrew Cuomo said he would sue UnitedHealth as part of a broader investigation into how health insurers set payment rates for hospitals and doctors outside of their networks. Earlier, Mr. Cuomo's office in a press advisory had foreshadowed an investigation.

Options traders made distinctions between UnitedHealth and its rivals prior to the press conference. On Aetna and Humana, traders bought both puts and calls, said Rebecca Engmann Darst, equity option analyst at Interactive Brokers, "looking for jagged price movements [in either direction] as the scope of the Attorney General's investigation became clear."

In the early going for UnitedHealth, however, orders were concentrated in the puts, or the right to sell stock at lower prices. "Options traders appeared to have the inside jump on" the UnitedHealth disclosure, said Ms. Darst in a note to clients.

In all, 34,300 February 45 puts, which expire at the end of this week, traded, dwarfing the existing open interest of 2,800.

Many of those were purchased before Mr. Cuomo's press conference, strategists said. Indeed, Jon Najarian, co-founder of trading house OptionMonster, said several large trades for the $45 put registered in "every options exchange that had them" at the same instant -- 11:14:51 EST.

The puts traded for 40 cents each, as UnitedHealth stock traded around $46.50. Premiums soared to $1.55 just prior to Mr. Cuomo's press conference, then declined as the shares recovered . UnitedHealth shares fell $1.30 to $46.97 in New York Stock Exchange 4 p.m. composite trading.