Level 1 Option Report 

Level 1 keeps it fast and simple. Three times a month we'll tell you when to buy a call or a put on a stock that's about to move. This service uses the most basic option strategy and it requires the least amount of capital. It can fire at any time and when it does - you'll know. 

Issue     08/24/2010 Recent Reports     Past Reports    

Bearish UHS
Stock Option Trading Strategy Buy put options
Stock Option Trade Buy 10 UHS Oct $35 puts (UHS10V35.00) @ $3.20 - Day. Filled 8/24/10
Stock Option Target Sell 10 UHS Oct $35 puts @ $3.30 - Day. filled 9/1/10
Stock Option Stop None
Stock Description Universal Health Services, Inc., through its subsidiaries, owns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers, and radiation oncology centers.
call option trade

Option Trade Rationale In July, the company reported that its reported net income attributable to UHS was $65.6 million, or $.67 per diluted share, during the second quarter of 2010 as compared to $80.9 million, or $.82 per diluted share, during the comparable prior year quarter. Net revenues increased 3% to $1.34 billion during the second quarter of 2010 as compared to $1.30 billion during the second quarter of 2009.

After adjusting the reported results for the second quarters of 2010 and 2009 to neutralize the impact of the below-mentioned adjustments, our adjusted net income attributable to UHS was $66.7 million, or $.68 per diluted share, during the second quarter of 2010 as compared to $71.1 million, or $.72 per diluted share, during the second quarter of 2009.

The stock trades at a forward P/E of 12.
Trading Game Plan This company recently acquired Psychiatric Solutions and it has a lot of debt. In fact, S&P lowered their bond rating to junk.

UHS is going to get squeezed by higher costs in coming months. The demand for hospital care will rise when Obama-care kicks in, but who knows how the reimbursement process will work. Medicare is so far behind that over 60% of physicians refuse to accept it. Furthermore, Medicare has reduced the payout for services rendered.

This stock has been in a steady decline. On a long term basis, the up trendline has been broken, horizontal support has been broken and a head & shoulders pattern has formed. The stock is below the 200-Day MA and it will drift lower. I am not worried about a smap back rally so I want to buy longer term in the money options.
Stock Option Track Record 8/24/10 - Bought 10 UHS Oct $35 puts (UHS10V35.00) @ $3.20

9/1/10 - Sold 10 UHS Oct $35 puts @ $3.30. The market rallied on decent economic news in China and we had to close our short position down. We made $80 (10 x $.10 less commissions 2 x $10).