Humana Inc.: End this Week on a Takeover Note with HUM Calls

The week is ending, but we can run a quick weekend trade with the options of Human Inc. (NYSE:HUM). Humana with its market capitalization of $31.39B is engaged in providing health insurance and Medicare plans. The Company offers health and supplemental insurance plans to serve individuals, families, seniors, servicemen and servicewomen, and veterans. It operates in three segments: Retail, Employer Group, and Healthcare Services.

Humana is commanding all the attention today with an impressive 17.57% gain to a trading price of $209.75 per share as at 1:39PM EDT. In fact, the shares of Humana have recorded an unbelievably bullish run to set a new 52-week high of $210.65 in today’s session. The strong bullish trend recorded in Human today has precipitated a 0.17% gain in the healthcare sector despite the fact that all the other market sectors were recording losses.

Why is Humana Soaring Today?

Humana’s performance in the market today can be traced to the rumors of a takeover that currently surrounds the stock. News currently has it that Humana might be on track to merge with Aetna in a move that will probably give birth to the biggest health insurance player in the country. In fact, it seems that the merger talk is already in the pipeline as the company is reportedly working with advisers at Goldman Sachs Group Inc. Apart from Aetna; Cigna is also being fingered as a potential suitor.

Some people are skeptical about the possibility that the merger will become a reality but that is an issue for investors to trash out before committing to investing in Humana. On the contrary, option traders can play the odds in favor of call options because the positive sentiment that surrounds Humana is very high.

The Fundamentals in Support of the Bullish Sentiment

The shares of Humana have recorded an impressively bullish move this year even before the rumors about a merger started to surface. It might interest you to know that the shares of Humana has soared more than 42% in the last one year from a 52-week low of $115.51 to a 52-week high of $210.65.

Interestingly, the first quarter results (Q1 2015) results that Humana posted last month suggests that the stock has the fundamentals to support the bullish rally. Humana reported first quarter revenues of $1.38B to mark an 18% increase. The company reported first quarter EPS pf $2.82 per share to mark a 20% increase. Going forward the company expects to record Non-GAAP EPS between $8.50 and $9.00 and  Retail Segment pretax earnings between $1.6B  and $1.7B from $1.425B to $1.525B.

How to Trade HUM Options

From the foregoing, it is obvious that Humana is on track to deliver a sustained rally that might benefit call options. Humana is in a solid uptrend as its 50-day moving average of $176.27 is higher than its 100-day moving average of $165.3, which is in turn higher than its 200-day moving average of $149.44. I am optimistic about the prospects of Humana and I recommend buying HUM call options. You should consider buying the HUM Aug 2015 180.000 call (HUM150821C00180000) at an asking price of $30.49.

— Daily Option Alerts

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