Large Option Trader Dumped PG&E Puts Minutes Before Restructuring Report

Shares of PG&E Corporation PCG are up 27.4% over the past week on optimism that the company can fully recover from its bankruptcy filing related to 2017 and 2018 California wildfire liabilities.

The stock spiked higher Friday afternoon, and some unusually large option trades suggests a trader with deep pockets may have been aware of some good news from the company on Friday.

The Trades

On Friday, Benzinga Pro subscribers received three options alerts related to PG&E.

At 12:43 p.m., a trader bought 500 PG&E put options at a $21 strike price that expire on July 19. The calls were purchase at the ask price of $1.565 and represent an $78,250 bearish bet on PG&E shares.

The next large trade came about 12 seconds later. Likely the same trader sold 1,000 of the same July $21 put options at the bid price of $1.584. This sale represented a $158,400 bullish bet on PG&E.

Two more trades then went through within a minute of the first two. A trader first sold another 500 of the same July call options at a $1.595 bid price. Likely the same trader then sold an additional 956 of the same put options at a $1.611 bid price.

All together, the four trades represented a net $313,911 bullish bet on PG&E.

Why It’s Important

Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.

Unfortunately, because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100% certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the four trades on Friday morning were clustered so closely together time-wise, it’s possible the trades were placed by an institution, despite their relatively modest size.

Restructuring Report

It’s possible the person or institution making these trades had information or grounds for speculation on a news item that broke about 15 minutes after these trades took place.

Around 1 p.m., Bloomberg reported PG&E is planning a $14 billion compensation fund for people impacted by the wildfires and is considering a potential $31 billion restructuring plan.

Of course, the timing of this announcement so closely after the large option trades could certainly have been coincidence. Sometimes reports such as these inevitably leak, especially just prior to their release. If a person or institution caught wind of the potential restructuring news and sold put options just prior to its release, they timed the trade perfectly.

PG&E shares jumped from $22.81 at 1:00 p.m. to as high as $24.96 by 1:10 p.m. once the news hit.

At time of publication, the stock traded around $23.50 per share.

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Photo credit: Frank Deanrdo, Flickr