Options Corner: Oscar Health Bulls Bet On A Political Wild Card

While President Donald Trump and his supporters have been basking in the glow of major political victories, the administration's "One Big, Beautiful Bill" carries with it a potential landmine. As Sen. Elizabeth Warren (D-Mass.) and former Treasury Secretary Lawrence Summers have warned, the new law could have significant consequences for working American families. Cynically, though, the controversy might provide a tailwind for Oscar Health Inc OSCR.

A health insurance company, Oscar Health aims to deliver a more transparent and efficient ecosystem. Primarily, it achieves this through the deep integration of technology into every layer of the health insurance experience. For example, Oscar embedded telehealth as a core feature rather than a bolt-on. This functionality is also natively integrated into the company's platform rather than being outsourced to a third-party app.

Fundamentally, Oscar is focused on the individual exchanges of the Affordable Care Act (ACA) — meaning that the company sells most of its health insurance plans to people who buy coverage on their own rather than through an employer. All other things being equal, this dynamic puts Oscar in an arguably strong position due to the tremendous enrollment growth in ACA exchanges.

However, the major wrinkle right now for OSCR stock is the Trump administration's "Beautiful" bill. Warren, in a post on X, blasted the new law, stating that 17 million people are projected to lose healthcare coverage. Summers echoed the criticism, warning that the proposed reductions in Medicaid would shift unreimbursed care costs to hospitals, which would then lead to higher costs for patients.

It's a political mess considering that several Republican strongholds have witnessed robust ACA enrollments. Either way, despite the volatility of OSCR stock, the underlying enterprise may benefit from being a low-cost leader. Thus, the red ink could intrigue some battle-hardened speculators.

Using Game Theory To Plot A Strategy For OSCR Stock

As intriguing as the narrative may be for Oscar Health, at the end of the day, it's just an opinion. From a trading perspective (especially one involving options), opinions aren't that useful unless they can credibly speak toward both the magnitude component and the time element of the underlying asset. To better illuminate a possible path with OSCR stock, we can apply game theory. However, it's best to begin with a thought experiment.

Imagine flipping a coin 100 times each business day. Assuming a fair coin under normal environmental conditions, what you flip on Monday will have no bearing on what you flip on Tuesday and so on. This is obviously because tossing a coin represents a random event.

Now imagine that the stock market is also random. If that were the case, the market's performance on Monday would also have no bearing on Tuesday. Further, if we analyzed the likelihood of upside across various time intervals, we would see approximately the same ratio: 50%.

However, that's not what we observe at all in the real world. In the case of OSCR stock, framing its price action since its initial public offering as market breadth — or sequences of accumulative and distributive sessions — across rolling 10-week intervals reveals the following demand structure:

In the trailing two months, OSCR stock is printing a "4-6-U" sequence: four up weeks, six down weeks, with a positive trajectory across the 10-week period. This sequence is quite rare, having materialized 12 times since Oscar's IPO. However, what's intriguing is that, in 66.67% of cases, the following week's price action results in upside, with a median return of 6.79%.

Granted, we're dealing with small sample sizes here, considering that OSCR stock is a relatively new public security. Nevertheless, the main takeaway is that the market responds differently to OSCR, depending on its demand structure. Given that the historical response to the 4-6-U sequence favors the bullish speculator, aggressive traders can use this information to their advantage.

In this manner, traders apply game theory, making moves when the odds favor them and staying away when they do not.

Putting Theory Into Action

Based on the market intelligence above, aggressive traders may consider the 14.50/15.50 bull call spread expiring July 25. This transaction involves buying the $14.50 call and simultaneously selling the $15.50 call, for a net debit paid of $50 (the most that can be lost in the trade). Should OSCR stock rise through the short strike price ($15.50) at expiration, the maximum reward is $50, a payout of 100%.

Based on the price at time of writing, a 6.79% move would translate to somewhere around the $15.50 level, which is what makes the above trade enticing. However, the risk is that the projected move is a median performance metric: the actual move could be higher or lower (or even outright negative).

Indeed, as a baseline, OSCR stock carries a negative bias. The chance that the security will rise on any given week is only 46.26%. However, the flashing of the 4-6-U sequence has a tendency of tilting the odds favorably for the bulls, making Oscar Health a tempting proposition for a quick wager.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

Read Next:

• Options Corner: Why Low-Key Infrastructure Play Akamai Technologies Might Surprise You

Photo: Shutterstock