$PCG put prices double

Bearish option traders more than doubled their money in Pacific Gas & Electric (PCG) today as the company completes its initial stage of bankruptcy exit financing.

On Jun. 16, Market Rebellion’s proprietary Unusual Actvity programs flagged the purchase of 4,200 Weekly $10.50 puts, expiring on Jun. 26,  for $0.29 to $0.37 with shares at $11.16. This was clearly fresh buying, as open interest in the strike was only 723 contracts before the activity appeared.

Those puts traded for as much as $0.70 today, more than twice their average purchase price. The stock dropped 10.75% in the same time frame, 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.

PCG ended down 2.45% to $9.97 today. Shares fell after the California utility’s initial stage of bankruptcy exit financing was reportedly completed.

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