Humana: What the Put Selling Means

Feb.10.11 | About: Humana Inc. (HUM)

By Chris McKhann

Humana's volatility has risen to eight-month highs, and one trader is trying to capture profits by selling puts the health services company.

HUMThe recent gyrations in HUM have driven the 30-day historical volatility up to 28 percent--doubling its level in the last month--and the 10-day reading up to 37 percent. The average implied volatility sits at 30 percent, coming down after the company reported earnings on Monday.

Shares of HUM trade at $58.40, up fractionally on the day. They rose sharply to $64.21 on heavy volume on Friday and have been pulling back since. That spike put shares at the highest level since March 2008.

Option activity is concentrated at the May 52.50 strike, where a trader sold 2,500 puts for $1.45 against open interest of 195 contracts. The put selling is a bet that shares will remain above $52.50 through expiration.

(Chart courtesy of tradeMONSTER)