Sharp swings in shares of Pacific Gas & Electric (PCG) have allowed option traders to profit in both directions.
On Oct. 24, Market Rebellion’s proprietary programs showed that 2,500 Weekly $7 puts expiring this Friday were bought for $0.38 as part of a bearish spread with shares at $7.41. This was clearly a new position, as open interest in the strike was only 294 contracts before that session began.
Those puts traded for as much as $1.56 today, more than 4 times their purchse price. The stock fell 23.48% in the same time period, a large move but nowhere near that of its options on a relative basis.
Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.
Then yesterday our market scanners identified the purchase of 4,375 January $7 calls bought for $0.80 as part of a bullish roll with shares at $4.08. Volume was above the strike’s existing open interest of 3,081 contracts, indicating that this was fresh buying.
Those calls have traded for as much as $1.86 so far today, more than twice their purchase price. The stock surged 54.17% in the same time frame, illustrating the kind of leverage that can be achieved with options.
Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.
PCG is up 16.9% to $5.88 in midday trading, in the middle of a wide intraday range of $5.41 and $6.35. The stock has been highly volatile amid strong criticism over the utility company’s decision to shut off power amid the latest California wildfires.