Just last week bullish option traders more than doubled their money in Pacific Gas & Electric (PCG), but today the bears are scoring even bigger gains.
On Oct. 7, Market Rebellion’s proprietary programs flagged the purchase of 4,000 October $10.50 puts for $0.78 to $0.85 with shares at $11.43. This was clearly fresh buying, as open interest in the strike was only 1,526 contracts before the activity appeared.
Those puts traded for as much as $3 this morning, more than 3.5 times their purchase prices. The stock dropped 33.86% 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 is down 29.51% to $7.74 this morning. Shares fell after a U.S. Bankruptcy Court judge ruled against the California utility’s exclusive control over its restructuring.