Option Traders Cheer Fiat Chrysler Automobiles NV (FCAU) Hit

FCAU is panning new lows amid fraud accusations, much to the delight of recent option buyers

Jan 14, 2016 at 1:29 PM
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Carmaker Fiat Chrysler Automobiles NV (NYSE:FCAU) is under fire today, after a dealer in the U.S. accused the company of offering financial incentives for reporting false vehicle sales. While FCAU has said that the claim has no merit, the stock is taking a hit, last seen down 5% at $7.47 -- just off a fresh one-year low of $7.33 -- likely to the delight of recent option buyers. In overseas trading, the shares were halted several times due to heavy losses, and could also have been suffering alongside sector peer Renault SA, plagued by its own scandal

FCAU is off 18.6% already in 2016, following the broad market lower and sinking upon the completion of its Ferrari NV (NYSE:RACE) spin-off. The shares also suffered last week, thanks to some lackluster sales figures and bearish brokerage attention -- nothing new for the stock, which seven out of nine analysts rate a "hold" or worse.

Short interest on the equity is also elevated, currently accounting for 8.6% of its total available float. At FCAU's average pace of trading, it would take more than five full weeks to buy back these shares.

And option traders have been similarly pessimistic. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.3 is higher than 94% of all comparable readings from the past year.

FCAU options are trading at an astounding 19 times their usual intraday rate today, with puts slightly outpacing calls. Most of the action has transpired via symmetrical blocks of 4,000 contracts traded on the March 6 put and March 8 call, as well as the January 2017 10-strike call. It could be one trader implementing a long strangle in the March series, and partially funding the position by selling long-term calls at the 10-strike, though it's hard to tell. 

Now is an opportune time for FCAU's near-term option buyers to strike. Fiat Chrysler Automobiles NV's (NYSE:FCAU) Schaeffer's Volatility Index (SVI) of 45% is lower than 96% of readings in the last 12 months, meaning short-term options are attractively priced, from a historical standpoint.


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