Trader Takes Huge Bearish Position in AIRM

Air Methods Corp or (AIRM) is a company that provides air medical emergency transport services around the U.S., and medical aircraft interiors and medical transport products for customers around the globe. The stock is currently trading at $36.00 per share with a 52-week range between $31.31-$50.61. On the year the stock is down 2.47% and over a 12-month period the stock is up 11.02%

Recently there has been heavy selling of the company’s shares by investors, which can be connected to the weak numbers that AIRM announced for the first quarter of 2013. The company announced after the first quarter a $0.16 net loss per share and with the stock currently sitting around its 52-week low it is displaying signs that it is oversold.

Medical service competitors like UnitedHealth Group and Express Scripts have performed well this spring while Air Methods Corp is on the opposite path. This is especially concerning when AIRM makes up 1.99% of the S&P’s Small Cap Health Care Portfolio, that as a whole is improving. In other news, the company has announced that poor first quarter earnings were due mostly in part to inclement weather.

Unusual Option Activity:

We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. We scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.  Analyzing unusual order flow gives traders a window into what the positions that large institutional players have.  Knowing where these institutions are placing their bets can be hugely advantageous for any trader.

Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. We have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups.

The AIRM “Institutional Trade”: With AIRM ~$36, a trader bought 1950 AIRM Oct 35 Puts for $3.20

Their Risk: $320 per 1 lot
Their Reward: $3280 per 1 lot
Their Breakeven: $32.80
Cash Outlay: $624,000

Greeks of the Trade:
Delta: Short
Gamma: Long
Theta: Short
Vega: Long