Option Volume Explodes on Sinking AAC Holdings Inc (AAC)

AAC Holdings Inc (NYSE:AAC) tumbled to a record low earlier, after a short seller weighed in on the company's recent fundamental woes

by Karee Venema

Published on Aug 4, 2015 at 3:00 PM
Updated on Jun 24, 2020 at 10:16 AM

It's been a pretty shocking week for AAC Holdings Inc (NYSE:AAC), after California courts unsealed documents charging the company's co-founder and former president, Jerrod Menz -- as well as several other employees -- with murder in the 2010 death of a client. Additionally, short seller Bleecker Street Research today published a critical report of the firm. Against this backdrop, the stock has plunged 37% --  fresh off a record low of $15.09 -- and is securely on the short-sale restricted list, after being halted several times.

In the options pits, overall volume has surged to 20 times the average intraday pace, and amid the uncertainty surrounding future price action, AAC's 30-day at-the-money implied volatility has more than doubled to 115.9% -- an annual high. The security's August 22.50 call has seen the most action, where speculators appear to be buying and selling to open the options.

For those purchasing the calls, the goal is for AAC to rally back above the strike by the close on Friday, Aug. 21 -- when front-month options expire. Meanwhile, those initiating short calls are hoping $22.50 -- which roughly coincides with the stock's October 2014 highs -- serves as a short-term ceiling.

Widening the sentiment scope reveals short-term traders have shown a penchant for near-the-money puts over calls among options expiring in three months or less. Specifically, the security's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) is docked at a top-heavy 2.24.

Elsewhere on the Street, short sellers are likely cheering today's sell-off, with roughly 36% of the stock's float is sold short. However, additional troubles could be on the horizon, considering AAC Holdings Inc's (NYSE:AAC) consensus 12-month price target of $52.50 stands at a 163% premium to current trading levels. Going forward, a round of price-target cuts could pressure the shares of AAC.



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