Options Traders Blast Struggling Hospital Stock

Options volume is running at 126 times the average intraday amount

Managing Editor
May 6, 2020 at 2:36 PM
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Hospitals are a hot-button issue amid the coronavirus outbreak and the gradual re-opening of the economy. Piper Sandler yesterday identified hospital operators HCA Healthcare Inc (HCA) and Tenet Healthcare Corp (THC) as two names best equipped to withstand any sector uncertainty. Left off the list was Community Health Systems (NYSE:CYH), but that hasn't stopped options traders from blasting the stock today nonetheless.

At last check, CYH option volume was running in the top percentile of its annual range. Over 20,000 options have crossed the tape -- a whopping 126 times the intraday average, with an even skew between calls and puts. A deeper dive shows two options account for all of this likely spread activity; the July 5 call and put with 10,000 contracts exchanged apiece.  

This explosion in CYH's options pits is unprecedented. For context, in the past 10 days, 373 calls have exchanged hands compared to just 39 puts. The resultant call/put volume ratio of 12.07 ranks in the elevated 81st annual percentile, meaning this rate of call buying relative to put buying is unusual.

Now certainly looks like an affordable time to buy CYH options, per the security's Schaeffer's Volatility Index (SVI) of 127%, which sits in the low 7th percentile of all other readings from the past year. This implies that near-term option traders are pricing in relatively low volatility expectations.

Meanwhile, short sellers have been heading for the exits, with short interest down 16.2% in the two most recent reporting periods. The 16.96 million shares sold short accounts for 15% of CYH's total available float, and over a week's worth of buying power, at the stock's average pace of trading.

On the charts, Community Health stock was last seen down 2% at $2.98, ceding its year-to-date breakeven level. The shares have traded in a tight range for the past month, with breakout attempts thwarted by their overhead 100-day moving average.

Daily Stock Chart CYH


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