Wildfires Spark Wild Options Trading on PCG, EIX Stocks

PCG and EIX stocks are nosediving as California battles deadly blazes

Nov 12, 2018 at 2:18 PM
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California's "Camp Fire" is already the state's most devastating wildfire on record, and combined with the "Woolsey Fire," has killed more than 30 people and left more than 220 more missing. As such, the shares of California power providers PG&E Corporation (NYSE:PCG) and Edison International (NYSE:EIX) are getting destroyed today, with Morgan Stanley estimating massive losses for both property and utility equipment. What's more, options traders are bombarding PCG and EIX today.

PG&E was already blamed for some of California's most lethal wildfires last year, as authorities attributed the blazes to trees coming into contact with power lines. The company is expected to spend roughly $6 billion on wildfire safety over the next five years. Lawmakers in September passed a bill that should help the utility provider avoid billions of dollars in liabilities, and help customers avoid massive hikes in energy costs.

PCG stock on Friday suffered its steepest one-day percentage loss in 16 years, dropping 16.5%. The equity is down another 14.7% today to trade at $34.05, and earlier touched a 14-year low of $24.95. Already down more than 27% so far in November, the equity is on pace for its worst month since 2001.

PCG stock chart nov 12

So far today, roughly 20,000 calls and 11,000 puts have changed hands -- three times the average intraday volume. Most active is the November 35 call, where close to 4,400 contracts have traded. Digging deeper, it appears a healthy portion of the calls may have been bought to open. If so, the speculators are expecting PG&E shares to rebound above $35 before front-month options expire at Friday's close.

Shares of Edison International -- which supplies electricity to a large portion of Southern California -- are trading at 5-year lows today. The stock plummeted more than 12% on Friday, for its worst session since December 2017, back when another round of wildfires were raging near Los Angeles. The equity is down another 11.2% today to trade at $54.17, and earlier bottomed at $45.50. Already this month, EIX has surrendered 22%.

EIX stock chart nov 12

EIX put volume is pacing for an annual high today, with more than 4,000 contracts already exchanged -- 21 times the norm. Roughly 3,300 calls have also crossed the tape, representing 15 times the average afternoon pace. It appears the January 2019 45-strike put is most active, with a mix of buy- and sell-to-open activity. Buyers expect Edison International stock to extend its retreat and breach $45 in the next couple of months, while sellers expect the shares to stay north of the strike through January options expiration.

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