Encompass Health Plummets 10%—What’s Behind the Freefall?

• EHC collapses 10.7% intraday to $106.83, hitting a new 52-week low of $82.74 earlier this year.
• NY Times exposé reveals systemic patient safety failures at Encompass facilities, sparking regulatory scrutiny.
• Sector peer Select Medical (SEM) dips 2.3%, but EHC’s collapse outpaces broader healthcare trends.

Encompass Health’s stock is in freefall today, driven by damning revelations of patient deaths and operational failures at its rehab hospitals. The 10.7% plunge—the worst since 2023—underscores investor panic as reputational damage collides with looming regulatory consequences. The stock trades near its 200-day moving average ($103.87), with bearish technicals and options activity signaling prolonged downside pressure.

NY Times exposé Sparks Regulatory Backlash and Operational Concerns
The stock’s collapse is directly tied to the NY Times’ investigation detailing fatal carbon monoxide poisoning, medication errors, and bed alarm failures at Encompass facilities. Federal regulators’ failure to penalize these incidents or mandate public transparency has amplified investor fears of long-term legal liabilities and reputational damage. With 248,000 annual admissions and an 11% net profit margin, Encompass’ business model relies on rehab facility safety—a cornerstone now eroded by systemic operational flaws exposed in the report. Medicare data further highlights its 34 facilities with statistically worse preventable readmission rates, deepening skepticism over profitability sustainability.

Hospitals Sector Under Regulatory Turbulence—Encompass Lags Peers
While sector leader Select Medical (SEM) holds up better (-2.3%), Encompass’ freefall reflects broader industry risks highlighted in Black Book’s report on federal policy shifts. Over 14 regulatory changes—from Medicaid block grants to workforce mandates—are destabilizing hospital finances and operational stability. SEM’s muted reaction suggests the sector’s credibility hinges on transparency, a gap Encompass now struggles to bridge. The NY Times’ findings have isolated EHC as a governance outlier, widening its underperformance relative to peers.

Bearish Options Signal Downside—Focus on Puts and Volatility Contractions
Technical Indicators:
• 200-day MA: $103.87 (key support)
• RSI: 47.56 (neutral)
• Bollinger Bands: Below middle band ($119.85)
• MACD: Negative divergence (-0.08 vs signal line 0.28)

Bearish momentum dominates, with the stock testing critical support. Aggressive traders should prioritize downside protection using puts, while monitoring the 200-day MA for potential rebounds.

Top Picks:
EHC20250815C115 (Call, $115 Strike): Delta 0.29 | Gamma 0.03 | Theta -0.09 | IV 34.56% | Turnover $243k. This out-of-the-money call offers leverage (55%) to short volatility contractions. Sells at 74% premium contraction—ideal for bearish bets on short-term rebounds.

EHC20251219P95 (Put, $95 Strike): Delta -0.23 | Gamma 0.01 | Theta -0.02 | IV 35.20% | Turnover $0. This deep out-of-the-money put offers asymmetric risk/reward (28% leverage) for long-term bearish plays. Prime for regulatory fallout bets, though liquidity is low—use small lots.

PAYOFF SCENARIO (5% downside to $102.65):
- EHC20250815C115: Out of the money (payoff $0)
- EHC20251219P95: Payoff $2.35 per contract ($95 - $92.65)

Aggressive bears should layer puts at $95-$100 strikes. Monitor 200-day MA ($103.87) for rebounds—break below signals deeper declines.

Backtest Encompass Health Stock Performance
The backtest of EHC's performance after an intraday plunge of -11% shows mixed results. While the 3-day win rate is 50.44%, the 10-day win rate is slightly lower at 49.73%, and the 30-day win rate is 48.32%. This indicates that EHC tends to recover moderately from such large intraday losses but does not consistently rebound within short periods.

Bearish Bias Dominates—Regulatory Risk Remains Key Watch
Encompass Health’s plunge isn’t just a correction—it’s a credibility reckoning. While the stock’s 3-day recovery odds are 50.5%, the long-term outlook hinges on CMS enforcement actions and operational transparency. Aggressive traders should prioritize downside protection via puts at $95 strikes until clarity emerges. Watch sector leader Select Medical (SEM, -2.3%) for broader trends, but EHC’s issues are uniquely existential. Bottom line: This isn’t a sector dip—it’s a governance wake-up call. Trade cautiously until systemic risks subside.