Trade the Warren Buffett Rally in UnitedHealth Stock With This High-Reward, Low-Risk Options Strategy

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Early in my professional investing career, I learned that no matter how much you think you know, the market knows more.

So while we should always try to assess where a stock or sector is headed, the better way to trade is with a simple framework: Any stock can go up and thus be a source of profits. However, owning each stock comes with different levels of risk, at different times.

That’s why, when I see a stock like United Healthcare (UNH), I remind myself, and you, that when a stock has been a headline-level bust all year, it sets up two scenarios. The first is that it has giant upside potential, as investors reconsider it. And, second is that it has about as much risk of major loss as it has just demonstrated.

UNH’s issues started with a horrific public tragedy, and then a self-induced set of behaviors and processes that put it in the crosshairs of regulators. And, in turn, investors.

This month, some of those headwinds suddenly reversed, as major investors including Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) and David Tepper’s Appaloosa Management announced investment positions in the troubled healthcare giant and Dow Jones Industrial Average ($DOWI) member. But UNH is still facing a lot of issues.

So, in my world, that means it’s time to talk about collaring the stock using options, and pointing to Barchart’s very well-organized and time-saving options data for help.

Here’s why UNH is a great collar setup to me. The stock is way down, what I call a “dog collar” situation.

UNH dove in price with the market in early April, but its potential legal trouble surfaced around the time the S&P 500 Index ($SPX) and other broad market indicators rallied back. The stock has gone from approaching its all-time high in early April, to less than half its $600 high-water mark for 2025.

Ah, but then the white knights of Wall Street appeared. And UNH is still a very robust business, a healthcare leader. So this creates a dichotomy of sorts. And increases the chances of a big move in either direction. This is exactly the best scenario for collars, if you are a risk manager like I insist on being.

For those who believe that if you “just buy and hold great stocks” everything will work out, UNH is a cautionary tale. Few, if any, stocks are immune to long stretches in which they do not produce any returns. In the case of UNH, its 12% pop on Friday brought its return for last week above 20%. Impressive. But that only brings it back to where it traded during the middle part of 2020! Risk happens, and it happens fast sometimes.

Collars are misunderstood by many investors. While they are designed to protect against loss below a certain price threshold over a set period of time, they do not have to represent lost upside potential. Because unless I spend all of my assets on that collar, if it blasts above the call strike price before expiration date, I can buy more stock. Or buy call options. So I’m not missing out on a “flyer.” I just need to do more work to continue pursuing price growth above the call strike price.

As I’ve written here many times, collaring stocks is hardly a one-size fits all process. Every stock is at least a little different, as are the option contract specifications available.

UNH has a very active options market, especially after the events of the past several months. Many traders are trying to turn their beliefs about the stock into profits. I looked out to the second half of 2026, but the pricing was not much better than staying shorter term. So above you see one possibility, going out 6 months to February 2026.

There’s always a tradeoff an investor needs to accept with collaring stocks.

In this example, that tradeoff is on the out-of-pocket cost, around 6%. That’s the main “risk” here, since the put strike price is $300, just below Friday’s $304 closing price. So the downside is that cost plus a few dollars a share, or about 8%. For a stock down more than 50%.

The upside is out to $380, which is where the stock had one of its 2025 meltdown moments, back in May. That now represents 18% upside before any capping of gains would occur.

This is merely one example of what we can do if we step back for a moment and think of what investing is.

To me, it is not so much about “owning great companies,” since markets work differently now. They reward those who use the markets as a tool to pursue profits with high liquidity.

And they also reward those who make risk management front and center in their investment decisions. Collaring stocks, especially those in turmoil, can be a very useful, flexible part of that toolbox.

On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com

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