Bullish Case: The rising implied volatility trend suggests optimistic sentiment regarding HUM, particularly ahead of key earnings reports. Strong Medicare membership growth could further support price appreciation, enhancing investor confidence.

Bearish Case: Regulatory pressures and a significant drop in Medicare Advantage star ratings could lead to revenue declines, amplifying investor anxiety. The recent trends in high implied volatility indicate potential market nervousness ahead of earnings results.

Potential Outcomes:

1. Continued growth in Medicare Advantage (65%).

2. Disappointing Q3 results prompting a substantial drop in share price (35%).

3. Regulatory scrutiny results in Medicare clawbacks impacting profitability (50%).

4. Positive sentiment sustains and drives moderate price recovery (55%).

Trading Oracle: Consider a bullish strategy with a put credit spread, selling $250 puts and buying $240 puts, exploiting the current high implied volatility with a target return of at least 15%. Given the 75% probability of profit, this approach captures potential upside momentum while limiting risk. Hold until closer to Q3 results for maximum gain from volatility contraction.

October 27, 2024