Junk-Status Downgrade Sparks Heavy PG&E Options Trading

S&P Global warned of more credit rating downgrades

Jan 8, 2019 at 2:04 PM
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It's been a rough week for PG&E Corporation (NYSE:PCG). The shares plunged 22.3% yesterday as bankruptcy buzz swirled around the California utility name. Today, the stock is down 11.1% at $16.83, fresh off a 15-year low of $15.78, after S&P Global cut PCG's credit rating to "junk" status and warned additional downgrades could come down the pike if "management does not clearly articulate specific steps it will take to preserve credit quality over the long term."

pcg stock daily chart jan 8

Several analysts have chimed in on PG&E today, too. Morgan Stanley, for starters, said the company will not likely declare bankruptcy, but could sell its gas utility division to cover massive liabilities related to the deadly California wildfires. Mizuho said it's too early to speculate about regulatory outcomes, and it cut its PCG price target to $19 from $27. Plus, Morningstar said the cost of the wildfires could lower the value of the stock by $13 per share.

Options traders are getting in on the action, as well, with roughly 32,500 puts and 15,500 calls on the tape so far -- nine times what's typically seen at this point, and volume pacing in the 99th annual percentile. While the June 8 puts are most active, it looks like the activity here could be tied to stock.

Elsewhere, buy-to-open activity has been detected at the weekly 1/11 20-strike call, as traders position for a big bounce by this Friday's close, when the short-term series expires. Longer-term traders, meanwhile, appear to be selling to open January 2020 8-strike puts, setting a 2019 floor for PCG stock at the $8 per share mark.


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