Options Traders Are Betting on Hospital Stocks as Health Care Takes Center Stage

MIke Blake | Reuters

Political warfare over the future of the Affordable Care Act is likely to rage on for the foreseeable future, even as the U.S. Supreme Court appears ready to keep the program in place. President-elect Joe Biden wants to expand the program, while conservative challengers would rather see it scrapped.

The outcome, and the back-and-forth leading up to it, is likely to have a major effect on shares of hospital stocks, which have surged through the last week before pulling back Wednesday.

For example, Community Health Services stock had soared more than 60% since the beginning of November before dropping 10% in Wednesday's session. Options traders are betting moves of that magnitude are likely to continue to come thick and fast in either direction through the end of the year, at the very least.

"[Community Health] saw five times as many calls as puts trade today, and right now the options market is the stock could move 25% one way or the other by the end of the year," Optimize Advisors CIO Michael Khouw said Tuesday on CNBC's "Fast Money."

As the Supreme Court continues to hear arguments on the Affordable Care Act, these major moves will likely continue as well. In the near future, however, some traders are betting that the hospital trade is about to cool down.

"The most active options today were the [November expiration] 10.5-strike calls," said Khouw. "Some of that could have been profit-taking as the stock rose and then fell 10% today, so they might be expecting a little bit of a pause before we see some of the volatility that led us here."


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