united health is one of the largest companies in the United States in one of the largest sectors that pays a sizable dividend. Despite this, I don’t buy the stock outright.
Instead, I prefer options strategies where I can profit by going long at a discount. Specifically, I would prefer to sell the June $360 put for $10 (or more) than buy the stock at this time for several reasons.
The market is expanding:
First, stock valuations are generally quite limited. The forward-looking S&P 500’s price-to-earnings ratio of about 21 times may not ring alarm bells, but metrics that try to understand valuations through business cycles, such as the Shiller CAPE (cyclically adjusted PE) ratio, are nearing historic highs. JPMorgan’s long-term valuation research shows that when multiples rise, returns over the next five to 10 years tend to be lower than average. If that’s true, investors may want to consider strategies that generate “static returns.”
Option selling premiums, particularly cash-backed puts, offer a way to express constructive opinion on blue-chip companies while getting paid to wait for an attractive entry point.
The company has turned a corner…
UnitedHealth Group (UNH) stands out as a strong candidate for this approach. The stock’s valuation remains reasonable, if not exactly cheap, even after recent gains, and is well below its highs from a few years ago.
reason? UNH experienced strategic failures, primarily related to cost pressures and execution issues within the Optum division. However, with the reappointment of the former CEO, market confidence is starting to recover. Early signs suggest a renewed operational discipline and refocus on core capabilities that integrate healthcare delivery, insurance, and analytics, creating the potential for margin recovery. AI can also help speed up healthcare services, improve outcomes, and reduce costs. Key improvements for managed care providers.
Insurers could benefit from AI
Structurally, the healthcare sector continues to account for an expanding share of U.S. GDP, reflecting demographic tailwinds, advances in medical technology, and growing demand for integrated care solutions. UNH benefits from its size, diversified revenue mix, and strong data-driven infrastructure to consistently outpace broad-based sector and GDP growth. These fundamentals position us well for defensiveness and long-term growth, even if broad-based stock returns are compressed. Medical supplies like toothpaste and toilet paper are non-discretionary, especially for an aging population.
transaction:
By selling cash-secured puts, investors can monetize option premiums while establishing a disciplined entry point approximately 5% below current market prices. If the option expires worthless, the seller retains the premium as income. If allocated, investors would essentially be purchasing UNH stock at a discount, lowering its cost basis compared to current levels.
In either scenario, this trade reflects the philosophy of “wait and get rewarded.” That means you’re in a position to be a long-term participant in one of the most powerful franchises in the U.S. healthcare industry, while earning yield on the cash you part with. In this case, the yield until expiry is approximately 2.8%, which translates to an annualized rate of approximately 22%.
If the shares are assigned, the effective purchase price will be $350 per share ($360 put strike less premium collected). This is a level comparable to recent price increases. If someone is assigned, the basis can be lowered further by consistently selling covered calls against the resulting long position in the stock.
