PG&E Bulls Hit the Bricks as Stock Slumps

PCG shares are eyeing their lowest close in months

Oct 10, 2019 at 12:35 PM
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PG&E Corporation (NYSE:PCG) stock is spiraling today, down 28.6% at $7.84, on news a federal bankruptcy judge ruled California wildfire victims and PCG noteholders can file a reorganization plan for the embattled utility company -- potentially forcing the two sides to negotiate a settlement, per the order. Separately, the company on Wednesday cut power to roughly 750,000 homes and businesses in California as a preemptive measure to lower wildfire risk.

Options traders are blasting PCG stock amid this bear gap, with roughly 74,000 calls and 40,000 puts on the tape already -- seven times what's typically seen at this point, and volume pacing in the 98th annual percentile. The December 5 put and January 2020 10-strike calls are popular, and it looks like one speculator may have initiated a type of split-strike synthetic long with the back-month options by selling one December put for every two January calls they bought. 

However, the October 11 call is most active, and it looks like speculators may be liquidating their losing positions, selling to close the options ahead of expiration next Friday, Oct. 19. Call buying on PCG has been more popular than usual in recent weeks, relative to put buying. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) PCG's 10-day call/put volume ratio registers in the 61st annual percentile, and that front-month call has seen the biggest rise in open interest over this two-week time frame.

It's possible, however, that shorts were initiating the long calls to hedge against any upside risk. Short interest on PCG jumped 13% in the two most recent reporting periods to 44.08 million shares, which accounts for 8.5% of the stock's available float. These bears are sidelined today, though, with PG&E on the short-sale restricted list.

Taking a quick look at the charts, the $24-$25 region has emerged as a stiff ceiling for PCG stock in 2019, which coincides with last December's trading range. Since the security's most recent rejection from here in late June, its surrendered more than 69%. More recently, PCG was turned away by its 40-day moving average earlier this month, and is now headed for its lowest close since Jan. 24.

pcg stock daily price chart on oct 10


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