UnitedHealth bets before legal action deliver payoff

By Doris Frankel

CHICAGO, Feb 14 (Reuters) - Options trading in health insurance stocks turned unusually busy ahead of news that New York State plans to sue UnitedHealth Group, and that has some analysts questioning whether word leaked out beforehand.

While it may never be known whether nonpublic information was behind the trading, one thing is clear: one or more traders made a killing on options that briefly rocketed in value when UnitedHealth shares fell Wednesday as New York Attorney General Andrew Cuomo unveiled his investigation.

"It looks to me like someone might have known the news was pending and aggressively bought puts ahead of the announcement," said Henry Schwartz, president of options analytics firm Trade Alert in New York.

The U.S. Securities and Exchange declined to comment on the unusual activity in UnitedHealth.

Trading activity in both puts and calls in almost all health insurers shot up early Wednesday following news that Cuomo would soon detail an investigation of the industry's reimbursement practices.

Shares of UnitedHealth (UNH.N: Quote, Profile, Research) as well as rivals Humana (HUM.N: Quote, Profile, Research), Aetna (AET.N: Quote, Profile, Research) and WellPoint (WLP.N: Quote, Profile, Research) all sank after the start of New York Stock Exchange trading as investors awaited details slated for release around noon in New York.

"The interesting thing was that there were a string of very suspicious put trades in UnitedHealth, just ahead of the news conference by the New York Attorney General," said Jon Najarian, a founder of Web information site optionmonster.com.

"My suspicion was that somebody got wind of which health insurer would be charged by Cuomo's office ahead of his news conference," Najarian said.