Alternative Options for Investing in Universal Health Services Stock

Investors looking to buy shares in Universal Health Services, Inc. (Symbol: UHS) may hesitate at the current market price of $174.59 per share. However, there are alternative strategies to consider, particularly selling puts. One put contract worth attention is the October put at the $155 strike, which currently bids $8.30. Collecting this premium offers a 5.3% return against the $155 commitment, translating to an annualized return of 9.3%, a figure referred to as YieldBoost by Stock Options Channel.

While selling a put does not provide the upside potential of owning shares, it can still be an attractive strategy. The put seller only acquires shares if the contract is exercised, which occurs only if the market price fails to outperform the $155 strike. If Universal Health Services sees its price drop by 11.1%, and the contract is exercised, the effective cost basis will be $146.70 per share, after accounting for the $8.30 premium. Thus, the primary benefit of selling the put remains in earning that premium for the 9.3% annualized return.

Notably, this annualized return significantly exceeds the 0.5% annual dividend yield offered by Universal Health Services, which is 8.8% less based on the current share price. Investors who purchase shares solely to receive the dividend face a larger risk, as the stock would need to decrease by 11.13% to reach the $155 strike price.

When evaluating dividends, it is crucial to recognize that they are not always predictable and often align with a company’s profitability. Analyzing Universal Health Services’ dividend history can provide insights into whether the recent dividend will be sustainable, helping to determine if a 0.5% annualized yield is a realistic expectation.

The chart below showcases the trading history for Universal Health Services, with an emphasis on where the $155 strike lies in relation to this history:

This chart, along with the stock’s historical volatility, can serve as a useful tool alongside fundamental analysis. Together, they assist in assessing whether selling the October put at the $155 strike, which offers a 9.3% annualized return, presents an acceptable risk-reward scenario. The trailing twelve-month volatility for Universal Health Services is calculated at 31%, based on the last 250 trading days and the current price of $174.59. For additional put options and contract suggestions at various expiration dates, visit the UHS Stock Options page on StockOptionsChannel.com.

During mid-afternoon trading on Friday, the put volume across S&P 500 components reached 1.33 million contracts, matching call volume at 1.33 million, resulting in a put:call ratio of 0.70 for the day. This figure exceeds the long-term median put:call ratio of 0.65, indicating a higher number of put buyers than typically expected in the market today.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.