We will continue with our focus on the options of insurance companies this week as we explore possibilities in the healthcare insurance sector. Today, we will examine the options of Aetna Inc. (NYSE:AET) as the stock moves closer to making new highs.
Aetna Inc. with its market capitalization of $29.64B is a diversified healthcare benefits company. The Company offers a range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, medical management capabilities, Medicaid healthcare management services and health information exchange technology services.
Why We Are Looking At AET Options Today
The trading chart of Aetna presents an interesting picture with a clear upside potential that can reward bullish plays on AET calls. The chart above (with my annotations) shows how the shares of Aetna have traded within the last one year.
You will observe a slight similarity with between the chart of AET and the chart of ALL that we discussed yesterday. For one, the stock traded down for much of January before it obtained momentum for a bullish ascent in February.
Shares of AET had a 52-week low of $62.81 late last year before rallying to a 52-week high of $85.72 as the bullish ascent (Blue) shows. The $85 price point (Green) has been a major resistant point and shares of Aetna made an intraday high of $85 of November 6 to suggest that the stock might be gearing up for new highs. In addition, the stock has an RSI of 62.47, which presumes that the buying action is just starting out on the stock.
Why Shares of AET Might Make New Highs
The first reason behind the bullish momentum in Aetna Inc. is the impressive third quarter (Q3 2014) earnings that the company recently reported. Highlights of the Q3 earnings are presented below:
Aetna reported earnings of $1.79 per share to beat the consensus estimate of $1.58 per share and to mark an 11% year over year improvement
Revenue came in at $14.7B to surpass the consensus estimate of $14.6B and to mark a 13% year over year improvement
The company reported that Medical Membership increased by 1.4M annually to 23.6M
The segmental performance shows the Health Care segment reporting a 14% annual growth in revenue to $14.0B and an 8% annual growth in Group Insurance to $621.4M
Going forward, Aetna has a strong outlook and management confidently raised the earnings guidance for 2014 to $6.60 – $6.70 from $6.45 – $6.60.
The second reason I am optimistic that shares Aetna will reach new highs is its announcement that it will acquire privately held Bswift for $400M. Bswift is a provider of a technology platform that offers a retail shopping experience for health insurance exchanges and employers nationwide. It also provides benefits administration technology and services to employers.
How to Trade AET Options
I am bullish on Aetna and I recommend buying AET call options. The AET Jan 2015 85.000 call (AET150117C00085000) looks attractive to me at the asking price of $2.77. Buying the contract at that price will effectively have us committing to the possibility of having shares of Aetna soar above $87.77.
— Daily Option Alerts