Somewhat quietly, the Dow has rallied eight straight days, and is leading the market higher as of late. Such is the rotation of the market, especially during earnings season.
For the week the S&P 500 gained 1.4%, the Dow rallied 1.75% and the Nasdaq gained 1%.
The Stock – Oscar Health (OSCR)
Oscar Health is a health insurance provider in states with ACA (Obamacare) marketplaces in effect. The company operates in 20 states right now, with Florida claiming nearly half its 1.4 million members. Oscar specializes in low-cost plans that draw in healthy people who make fewer medical claims while prodding them toward preventative care, which lowers long-term costs. And management is quick to exit unprofitable efforts, in the past year shuttering its Medicare Advantage product, exiting California and pulling the plug on a joint offering with Cigna.
In the first quarter, the business blew past consensus, posting $2.1 billion in revenue, 11% better than expected and up 46% from a year ago, with particular strength in Kansas and Georgia, two states other providers have exited. Q1 also brought Oscar’s first positive net income, of $178 million, or 62 cents a share, which beat estimates by a big 34 cents. That now has Wall Street expecting Oscar to essentially break even for the first time this year, after losing $1.22 per share in 2023. Management says the year should produce $8.35 billion in revenue backed by better federal reimbursement rates and new initiatives like Spanish-language programs—it just launched “Hola Oscar” in Georgia to appeal to Latinos, for instance.
Long term, Oscar sees its business underpinned by two things: One is that it believes Obamacare has reached a critical mass and that political resistance to the program is fading, even in states like Texas, which is considering its own healthcare marketplace. The other is that it believes it can utilize its integrated technology systems to create deeper datasets on expected health costs for various demographics and then sell the information to other health care providers who seek to better model their businesses. It’s not changing the world but Oscar is a well-run outfit with solid potential.
Technical Analysis
OSCR was at just 5 at last October’s market bottom but embarked on an enormous advance from there, soaring to 18 after Q4 earnings in February. Then came a base-building effort, with a tedious 28% correction, though that wasn’t unreasonable at all given the prior upmove. OSCR actually began to perk up in April even as the market fell … and it’s kept on going, nosing to new highs ahead of the Q1 release and then soaring after the numbers came out. Stop — 17
The Covered Call Trade
Buy Oscar Health (OSCR) Stock at 22.5, Sell to Open July 22.5 Strike Calls (exp. 7/19) for $2, or a Net Price of 20.5 or less
Static Return: $200 per covered call (9.75%)
Breakeven: 20.5
Covered Call Return (if assigned): $200 per covered call (9.75%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 20.5 or less. (In this case 22.5 minus 2 = 20.5. Or another example is you could pay 22.25 for the stock and sell the call for 1.75, which also equals 20.5)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Permian Resources (PR) | 16.7 | 17 | 14.2 | May 17 - $0.75 | $0.15 |
| Toast (TOST) | 24.05 | 27 | 20 | May 25 -- $1.75 | $2.00 |
| CNX Resources (CNX) | 23.9 | 24 | 21 | May 24 -- $1.08 | $0.15 |
| Eldorado Gold (EGO) | 15.45 | 15 | 12.7 | May 16 -- $0.70 | $0.10 |
| Coupang (CPNG) | 22.2 | 22 | 18 | May 22.5 -- $1.20 | $0.15 |
| SweetGreen (SG) | 21.8 | 33 | 18.5 | May 21 -- $2.30 | $12.00 |
| Pan American Silver (PAAS) | 18.75 | 20 | 15.8 | June 19 -- $1.10 | $1.50 |
| Pinterest (PINS) | 41.5 | 42 | 35 | July 41 -- $2.75 | 2.7 |
The next Cabot Profit Booster issue will be published on May 21, 2024.
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