UnitedHealth Joins Nvidia and Tesla in Most Active Stock Option as Shares Tank: Options Chatter

$UnitedHealth (UNH.US)$ options volume jumped five-fold Thursday amid increasing demand for contracts that can shield shareholders from continued slump as stock headed for its lowest level in more than five years.

Shares sank as much as 19.2% after the Wall Street Journal reported that the US Department of Justice is investigating the insurer for possible criminal Medicare fraud. UnitedHealth said in a statement that it hasn’t been notified by the DOJ of the criminal investigation, adding that it stands by the integrity of its Medicare Advantage program.

More than 839,000 put and call options changed hands as of 12 noon in New York, according to exchange data tracked by moomoo. That landed UnitedHealth in the third slot of the most active stock option, behind Nvidia and Tesla. UnitedHealth's volume soared from a 20-day average of 137,160 contracts, according to data compiled by Bloomberg.

(To see UnitedHealth's options chain, click here. For the options ranking led by Nvidia and Tesla, click here.)

The alleged DOJ investigation adds to investor worries for a stock that's already beaten down as the insurer struggled to resolve its issues with rising medical costs driven by its Medicare clients. On Tuesday, the company suspended its 2025 outlook, citing higher-than-expected medical costs of many of its Medicare Advantage beneficiaries.

"The potential for Medicare fraud at the largest Medicare Advantage insurer is spooking investors, and if wrongdoing is eventually found, the monetary damages could be stiff," Julie Utterback, an analyst at Morningstar, wrote in a note Thursday. "Previous assertions under Andrew Witty that risk assessments would solve its current profit challenges look dubious," she said, referring to the former CEO who stepped down from that position earlier this week.

In the first quarter that ended March 31, the company reported that its medical care ratio, or the percentage of premium revenues spent on medical claims, rose to 84.8%, from 84.3% a year earlier, according to UnitedHealth's financial results released in April. That compares with $Cigna Group (CI.US)$'s 82.2%.

UnitedHealth tumbled 18% to $311.38 on Tuesday as the company's announcement on the change in leadership failed to assuage investor concerns compounded by the withdrawal of its full year outlook. Stephen Hemsley, who has served as UnitedHealth CEO from 2006 to 2017 will to take the helm, the company said then.

Shares extended their slump on Thursday, taking the shares down as much as 19% to $248.88 after the report on the alleged DOJ investigation. While the stock pared back those losses, it's still down 15% to $261.88 as of 11:26 a.m. in New York That deepened this year's decline to 48%.

Options that give the holder the right to sell the stock at $250 by tomorrow attracted the heaviest trading, with more than 38,950 contracts changing hands so far. That's more than 75X the open interest. Volume on those put options soared after the shares tumbled more than $43 to $264.41, bolstering the odds that the contract could in the money before it expires tomorrow.

Share your thoughts on UnitedHealth in the comments section. Can the insurer stem the slide in its stock price or do you see more troubles ahead? Let your voice be heard by voting below. And if you want to read more options column like this one on Coinbase, or this one on Taiwan Semiconductor, follow me here.

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