Equifax Bombarded By Option Bears Ahead of CEO Testimony

EFX's popular October 60 put won't be in the money unless the shares fall another 35%

Sep 18, 2017 at 1:24 PM
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The shares of credit agency Equifax Inc. (NYSE:EFX) are set for their sixth loss in seven sessions, and have lost nearly 35% so far in September, triggered by news of a massive data breach. Muddy Waters founder and noted short seller Carson Block is now suing Equifax, and U.S. prosecutors have reportedly opened a criminal probe into possible insider trading, after a handful of government bigwigs took aim at the company, including one senator comparing the firm to Enron. Against this backdrop, and ahead of Equifax CEO Richard Smith's expected Oct. 3 appearance on Capitol Hill, EFX options are once again flying off the shelves today.

At last check, EFX stock was down 0.6% at $92.46, on pace for its lowest close in two years. Equifax options volume is running at about two times the average intraday clip, with about 15,000 puts and 8,000 calls exchanged so far. The most active options are the weekly 9/22 90-strike put, which expires at the end of this week, as well as the October 60 and 90 puts, which will expire after the aforementioned CEO testimony, in mid-October.

Those buying the puts to open expect EFX to extend its retreat within the options' respective lifetimes. Specifically, the 90-strike put buyers expect Equifax shares to breach $90 in short order; the stock last week dipped below the round-number level to hit a new two-year low of $89.59. Buyers of the deep out-of-the-money October 60 puts, meanwhile, expect EFX stock to give up at least another 35% before the options expire on Friday, Oct. 20.

However, today's accelerated EFX options activity isn't outside the norm -- recently, at least. After news of the data breach got out, Equifax options volume started going haywire, peaking on Sept. 14, the same day EFX shares touched a new low. On that day, Equifax saw more than 111,000 puts and 55,000 calls change hands, sending call open interest to a new high of more than 49,000 contracts on Friday, Sept. 15. EFX put open interest, meanwhile, has continued to grow, and currently stands at an annual high of more than 105,000 contracts outstanding.

equifax options volume
Chart courtesy of Trade-Alert

The aforementioned October 60 put is already home to peak open interest among all options, with more than 27,600 contracts in residence -- about three times the runner-up October 100 put, where just over 8,300 contracts are open. Recent Trade-Alert color indicates a handful of the deep out-of-the-money October 60 puts were bought to open last Thursday, on the news of CEO Richard Smith's Oct. 3 testimony before a House panel.

Those traders are paying a pretty penny for their EFX puts, too. The stock's 30-day at-the-money (ATM) implied volatility (IV) now stands at a lofty 55.6% -- in the 99th percentile of its annual range. In addition, Equifax's 30-day IV skew of 27.9% is higher than 85% of all other readings from the past year, indicating that the stock's near-term puts have rarely been more expensive relative to calls.

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