Equifax Put Option Premiums Set to Jump on Massive Data Breach

Prospective EFX speculators should keep a close eye on option prices amid today's stock sell-off

Sep 8, 2017 at 8:46 AM
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Atlanta-based Equifax Inc. (NYSE:EFX), one of the three major U.S. credit bureaus, said late Thursday that a security breach had exposed the data of up to 143 million Americans -- including Social Security numbers, and in some cases, credit card information. Additionally, CNBC reports that three top executives at Equifax unloaded $2 million in company stock days after the breach occurred, though the officers were said to be unaware of the attack when the transactions were made in early August.

EFX stock is down 13% pre-market, on track to open around $124 -- well below recent support at its 80-day moving average. That drop would leave the shares back at early February levels, and -- barring a rapid recovery in today's trading -- would put EFX on pace for a Friday close beneath its 80-week moving average for the first time since 2011. This longer-term trendline provided key support for Equifax shares during a late-2016 pullback.

Ahead of last night's negative news, relatively few traders had sold EFX short. Short interest accounts for only 1.5% of the stock's float, though there likely won't be an opportunity for shorts to build their positions in the immediate future. An intraday drop of 10% or more would put EFX on the short-sale restricted list, which could translate into heightened interest in the equity's put options.

On that front, Trade-Alert reports that put open interest on EFX currently stands at an annual high, though that translates into a fairly modest accumulation of just 3,285 put contracts for lightly traded Equifax options. And while option premiums were pretty tame as of last night's close, with 30-day at-the-money implied volatility of 14.7% registering in only the 18th annual percentile, it seems safe to assume that EFX implieds will spike today.

With that in mind, traders may want to resist the urge to pile on the bearish bandwagon for EFX in light of today's news. There may be more downside in store for the stock as Wall Street learns additional details about the magnitude and fallout of the data breach, but a potentially rapid increase in the price of EFX put options could make it challenging to reap the maximum benefits of options leverage.

UPDATE, 10:25 AM: With just under an hour of trading in the books, EFX put volume has totaled 4,902 contracts -- already setting a new 52-week high. Also at a new annual high, as expected, is 30-day at-the-money implied volatility, which Trade-Alert pegs at 43.7%. Prior to today's surge, the 52-week high in this metric was 26.0%.

Meanwhile, the 30-day implied volatility skew for EFX options is 38.4%, in the 94th annual percentile. This simply confirms that EFX put options are pricing in considerably steeper volatility expectations than the stock's calls.

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