How to buy a major Dow component, at a discount

UnitedHealth is one of the largest U.S. companies in one of the largest sectors that pays a respectable dividend. Despite this, I wouldn’t buy the stock outright.

Instead, I favor an options strategy that pays me to get long at a discount. Specifically, I like selling the June $360 puts at $10 (or better) rather than purchasing the stock at the moment for several reasons.The market is stretched:

First, equity valuations generally are quite stretched. Forward looking S&P 500 price-to-earnings multiples may not set off alarm bells at roughly 21x, but measures which seek to view valuations through business cycles, such as the Schiller CAPE (cyclically adjusted pe) ratio are nearing historical highs. JP Morgan’s long-term valuation studies show that when multiples are elevated, subsequent 5–10‑year returns tend to be lower than average. If that’s true, investors may want to consider strategies that generate “standstill returns”.

Selling options premium — specifically, cash‑secured puts — offers a way to express constructive views on quality companies while being paid to wait for attractive entry points.

UnitedHealth Group (UNH) stands out as a compelling candidate for this approach. The stock’s valuation, net of the recent rally, is still reasonable, if not exactly cheap, and well below the all-time highs of a couple years ago.

The reason? UNH went through a period of strategic missteps, primarily linked to cost pressures and execution issues within its Optum unit. However, the reappointment of its previous CEO has begun to restore market confidence. Early signs suggest a renewed operational discipline and refocus on core capabilities — integrating healthcare delivery, insurance, and analytics — creating potential for margin recovery. AI could also help speed healthcare services, improve outcomes and lower costs; important improvements for a managed care provider.

Structurally, the healthcare sector continues to expand as a share of U.S. GDP, reflecting demographic tailwinds, advancing medical technology, and growing demand for integrated care solutions. UNH has consistently outpaced both the broader sector and GDP growth, benefiting from its scale, diversified revenue mix, and strong data-driven infrastructure. These fundamentals position it well for defensiveness and secular growth, even if broader equity returns compress. Healthcare, like toothpaste and toilet paper, is not discretionary, particularly for an aging population.

THE TRADE:

Selling a cash‑secured put allows investors to monetize options premia while setting a disciplined entry point approximately 5% below current market prices. If the option expires worthless, the seller keeps the premium as income. If assigned, the investor effectively buys UNH shares at a discount, lowering their cost basis versus today’s level.

In both scenarios, the trade reflects a “getting paid to wait” philosophy: earning yield on sidelined cash while positioning for long-term participation in one of the strongest franchises in American healthcare. In this case the nearly 2.8% yield to expiration works out to approximately 22% annualized.

In the event one is assigned the stock, the effective purchase price will be $350/share (the $360 put strike less the premium collected) – a level that corresponds to the most recent price jump. If one is assigned, one could further lower one’s basis by consistently selling covered calls against the resulting long equity position.