Equifax Stock Options Traders Target Inflated Premiums

Equifax admitted yesterday it's been sending consumers to a fake phishing site

Sep 21, 2017 at 3:01 PM
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Since news of a massive data breach first hit earlier this month, shares of Equifax Inc. (NYSE:EFX) have shed nearly one-third of their value. And while the shares were last seen trading up 1.1% at $97.06 -- comfortably off their Sept. 14 two-year low of $89.59 -- even after the company acknowledged yesterday that a hacker had initially comprised its system on March 10 and that it's been sending consumers to a fake phishing site.

Considering EFX stock has been wallowing in oversold territory for the past two weeks, it's not too surprising to see the shares taking a quick bounce. In fact, the equity's 14-day Relative Strength Index (RSI) closed at a record low 12.33 on Sept. 15, and was last seen at 17.94.

Options traders, meanwhile, have been ramping up their bearish exposure to the stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 45,236 puts versus 24,485 calls in the past two weeks. Plus, put open interest of 126,724 contracts is at a 52-week peak -- more than doubling call open interest of 56,457, though this is also at a 12-month high.

Drilling down, the top five open interest positions are all puts that expire in four weeks. The October 60 strike is most populated, with 26,957 contracts outstanding. Data from Trade-Alert points to a mix of buy- and sell-to-open activity at this deep out-of-the-money strike in recent weeks.

While those buying to open the positions could be expecting a breach of $60. Considering EFX has not traded below since October 2013, though, it's also possible shareholders could be protecting paper profits against any additional downside risk. 

Those selling to open the puts are likely looking to take advantage of inflated options premiums. EFX's 30-day at-the-money implied volatility hit a 52-week high of 61.5% on Sept. 15, and was last seen at 42.5% -- in the 96th annual percentile. In other words, elevated volatility expectations are being priced into short-term options, making selling premium a more appealing strategy.

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