UnitedHealth Group Soared 3.1%, What’s Fueling This Contrarian Rally?

Summary
• Warren Buffett’s Berkshire Hathaway disclosed a $1.6B stake in UNH, sparking a 12% surge on Friday.
• UNH trades at 11x trailing earnings, a 40% discount to its five-year average PE of 21x.
• Sector peers like Elevance Health (ELV) rose 0.98%, signaling cautious optimism in healthcare.

UnitedHealth Group’s (UNH) 3.1% intraday rally on August 18, 2025, defied a 40% year-to-date slump, driven by Warren Buffett’s re-entry into the stock after a 14-year absence. The stock’s 313.425 price marked a 3.1% gain from its 304.01 close, with intraday swings between 307.42 and 316.40. This surge, coupled with sector peers like Elevance Health (ELV) rising 0.98%, highlights a fragile but growing confidence in healthcare’s long-term value despite near-term operational headwinds.

Buffett’s Contrarian Bet Ignites Short-Term Optimism
Warren Buffett’s $1.6 billion investment in UnitedHealth Group (UNH) on August 15, 2025, catalyzed a 12% single-day rally—the stock’s best performance since 2020. This move, a stark reversal from Buffett’s 2010 exit, signals a contrarian belief in UNH’s discounted valuation. Despite persistent challenges—medical cost ratios at 89.4%, compressed margins, and a 2025 earnings guidance cut to $16/share—Buffett’s stake has injected liquidity and speculative momentum. Analysts like Kevin Fischbeck (Bank of America) note that while the investment validates UNH’s long-term potential, near-term risks like Medicare Advantage (MA) star ratings in October and coding rule changes remain critical uncertainties.

Healthcare Sector Gains Momentum as Buffett-Driven Re-Rating Begins
The Health Care Providers & Services sector saw mixed but positive momentum, with Elevance Health (ELV) rising 0.98% and Centene Corporation (CNC) up 5.8% on Friday. Buffett’s UNH investment, coupled with peers like ELV and CNC cutting 2025 guidance due to rising medical costs, suggests a sector-wide re-rating. While UNH’s 11x PE remains a discount to its five-year average, the sector’s defensive appeal—driven by Buffett’s rotation into healthcare and infrastructure—has attracted capital. However, challenges like CMS’s October MA star ratings and regulatory scrutiny continue to weigh on broader sector sentiment.

Options Playbook: Leveraging Volatility in a High-Beta Healthcare Rally
• 200-day average: 444.73 (far above current price)
• RSI: 58.18 (neutral, suggesting consolidation)
• MACD: -5.40 (bearish divergence)
• Bollinger Bands: 303.14 (upper), 265.53 (middle), 227.92 (lower)

UNH’s technical profile reflects a short-term bullish trend amid a long-term bearish backdrop. Key support lies at 303.50–304.90 (30D range), while resistance is at 299.77–307.52 (200D range). The stock’s 3.1% intraday gain has pushed it closer to the 315 strike, where options liquidity is robust. For leveraged exposure, the UNH20250822C315 (call) and UNH20250822P315 (put) stand out:

• UNH20250822C315
- Strike: 315, Expiration: 2025-08-22
- IV: 45.27% (high volatility)
- Leverage Ratio: 49.43% (high)
- Delta: 0.496 (moderate sensitivity)
- Theta: -1.0889 (rapid time decay)
- Gamma: 0.0239 (high sensitivity to price swings)
- Turnover: $17.89M (liquid)
- Payoff at 5% upside (329.09): $13.69/share
- Why it works: High leverage and liquidity make this ideal for aggressive bulls betting on a post-October MA star rating rebound.

• UNH20250822P315
- Strike: 315, Expiration: 2025-08-22
- IV: 42.45% (moderate)
- Leverage Ratio: 48.14% (high)
- Delta: -0.505 (moderate bearish exposure)
- Theta: -0.078 (slow decay)
- Gamma: 0.0255 (high sensitivity)
- Turnover: $2.17M (liquid)
- Payoff at 5% downside (297.28): $17.72/share
- Why it works: Balances risk with high leverage, ideal for hedging against a potential pullback before CMS ratings.

Aggressive bulls may consider UNH20250822C315 into a bounce above $327.

Backtest UnitedHealth Group Stock Performance
The backtest of UNH's performance after a 3% intraday surge shows mixed results. While the stock experienced a positive surge, the returns over various time frames were generally negative, with the exception of a slight positive return on the maximum return day, which was 59 days after the event.

UNH’s Rally: A Contrarian Play or a Sector Re-Rating?
UnitedHealth Group’s 3.1% intraday surge, fueled by Buffett’s $1.6B stake, underscores a fragile but growing conviction in its discounted valuation. While the stock’s 11x PE remains a 40% discount to its five-year average, near-term risks like CMS star ratings and coding rule changes loom large. The sector leader, Elevance Health (ELV), rose 0.98%, reflecting cautious optimism. Investors must monitor UNH’s ability to hold key support at 303.50 and resistance at 307.52, while sector-wide momentum could be a catalyst. For now, the UNH20250822C315 and UNH20250822P315 offer high-leverage options to capitalize on volatility. Watch for $310 breakdown or regulatory reaction.