Oscar Health (OSCR) stock is highly rated and recently saw its Composite Rating climb to 98 on a scale of 1 to 99. One way to take ownership of Oscar Health stock for less than the current price is via a cash-secured put option.
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Given the high volatility for a stock such as OSCR, it can result in potentially buying the stock at a large discount. Let’s take a look at how a cash-secured put trade might look on Oscar Health stock.
As a reminder, a cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock.
Oscar Health is a New York based digital health-insurance company. According to IBD Stock Checkup, OSCR stock ranked number 1 in its group. It holds not only a Composite Rating of 98 but also an EPS Rating of 81 and a Relative Strength Rating of 99.
Oscar Health Stock: The Setup
The goal here? Either have the put expire worthless and keep the premium. Or, get assigned the option and acquire Oscar Health stock below the current price.
Traders selling puts must understand that they may be assigned 100 shares at the strike price. Let’s assume we’re happy to buy 100 shares of Oscar Health stock at a price of 22.50 any time between now and Nov. 15.
Selling a Nov. 15-expiration, 22.50-strike put would generate around $220 in premium per put contract, based on recent trading. The put seller would have the obligation to purchase 100 shares of Oscar Health stock at 22.50 if called upon to do so by the put buyer.
The break-even price for the trade? Calculate it by taking the strike price less the premium received. In this case, the trade gives a break-even price of 20.30. That’s 11.5% below Friday’s closing price. If Oscar Health stock stays above 22.50 at expiry, the put expires worthless, leaving the trader with a very high 10.8% return on capital at risk. That works out to 73.3% on an annualized basis.
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Risks Vs. Rewards
The main risk with the trade is similar to outright stock ownership. If the stock falls sharply, the trade will suffer a loss. However, the loss will be partially offset by the premium received for selling the put.
The maximum loss on the trade would occur if OSCR stock fell to zero. The trade would lose $2,030 but most traders would cut their losses before then.
Cash secured puts are a fantastic way to generate a nice return on stocks the trader is happy to own. If the put does get assigned, the investor takes ownership with a reduced cost base and can potentially begin selling covered calls to generate additional income from the position.
Oscar Health is due to report earnings in early November, so this trade would have earnings risk if held to expiration.
Remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
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