Hedge Your Portfolio With This Bearish Option Trade in UNH Stock

TL;DR

Learn how to set up a bear put spread strategy for United Health Group stock to hedge against potential market downturns.

Transcript

[Applause] hey option traders for today's trading strategy we're going to take a look at a bear put spread in united health group the market is currently in a confirmed uptrend but things are starting to look a little extended so traders with a lot of bullish exposure may want to start hedging their bets by adding some bearish option trades in case... Read More

Key Insights

• 🧔 The bear put spread strategy is useful for hedging against potential market downturns.
• 🫥 United Health Group's stock has been struggling to cross above its 50-day line, indicating resistance.
• 🧔 The maximum loss in a bear put spread is the difference in strike prices minus the premium received.
• 📅 Earnings risk is not a concern in this trade as United Health Group's earnings are scheduled for April 21st.
• 🤑 It is important to practice with virtual trading accounts before risking real money in options trading.
• 🌸 Investors should be aware of the risks involved in options trading, where losses can exceed the initial investment.
• 👻 The bear put spread strategy allows investors to know their worst-case scenario in advance.

Questions & Answers

Q: What is a bear put spread strategy?

A bear put spread strategy is a type of options trading strategy where an investor buys a put option and simultaneously sells a further out-of-the-money put option. It is used to profit from a decline or sideways movement in the underlying stock.

Q: How does the bear put spread strategy work?

The investor profits if the stock trades lower or stays below the short put option at expiration. The maximum profit is achieved if the stock price drops below the strike price of the short put option. The risk is limited to the difference in strike prices minus the premium received.

Q: Why is United Health Group a good candidate for a bear put spread?

United Health Group's stock is currently below important moving averages and has been unable to cross above its 50-day line. This indicates strong resistance and potential downside. It makes it a suitable candidate for a bearish options trade.

Q: How do I set up a bear put spread for United Health Group?

In your trading account, select the ticker symbol "UNH" and choose options contracts expiring the week of March 19, 2021. Set up the bear put spread by buying the lower strike put option and selling the higher strike put option.

Summary & Key Takeaways

• The market is in an uptrend, but traders with bullish exposure may want to hedge their bets with bearish option trades.

• United Health Group is a good candidate because the stock is below important moving averages and has struggled to cross above its 50-day line.

• The bear put spread strategy involves buying a put option and selling a further out-of-the-money put option to profit if the stock trades lower or sideways.