How Large Option Traders Are Playing PG&E Ahead Of Critical Bankruptcy Deadline

PG&E Corporation PCG shares are down 47.7% over the past year. At least one larger option trader is betting on more downside ahead as the company works through a complex bankruptcy.

The PG&E Trades

On Wednesday, Benzinga Pro subscribers received three option alerts related to unusually large PG&E trades.

• At 10:49 a.m., a trader sold 45,000 PG&E put options with a $6 strike price expiring on June 19 at the bid price of 45.1 cents. The trade represented a more than $2 million bullish bet.
• At 11:00 a.m., a trader bought 14,989 PG&E put options with a $5 strike price expiring on Jan. 15, 2021 at the ask price of $1.45. The trade represented a more than $2.1 million bearish bet.
• At 11:11 a.m., a trader sold 4,820 PG&E call options with a $21 strike price expiring on June 19 at the bid price of 10.1 cents. The trade represented a $48,682 bearish bet.

See Also: Here's How Much Investing $100 In PG&E Stock Back In 2010 Would Be Worth Today

Why It’s Important For PG&E Investors

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.

In this case, given the relatively large size of the largest trades on Wednesday, they could certainly be institutional hedges.

PG&E Bankruptcy Deadline Looming

The large PG&E option trades on Wednesday come the same day CEO Bill Johnson announced he will be stepping down on June 30. Johnson took over as CEO a little more than a year ago and has steered it through a difficult bankruptcy triggered by more than $30 billion in liability related to PG&E’s involvement in California wildfires.

A key deadline is looming in PG&E’s bankruptcy process. The company must get its reorganization plan approved by regulators by June 30 if it wants to participate in a new California wildfire fund to help utilities handle future liabilities.

PG&E shares have been volatile over the past year but have stayed well above $0 up to this point despite the bankruptcy. Investors are hopeful that the stock will still have equity value in its assets and liabilities after the bankruptcy is completed.

Analysts are expecting PG&E to report first-quarter earnings per share of $1.01 on revenue of $5.09 billion, up 26.9% from a year ago.

Bullish sentiment among StockTwits messages mentioning PG&E is up from just 55.9% on Jan. 1 to 86% on Wednesday.

See Also: Mizuho Upgrades PG&E, Expects Bankruptcy Deal By June Deadline

Benzinga’s Take

Given the first two trades of the morning were similar in size, they may simply represent a trader rotating from June puts to January puts, extending his or her bearish thesis out further in time. The break-even price on the Jan. 2021 puts is $3.55, suggesting at least 67.6% downside over the next nine months.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Photo credit: Frank Deanrdo, Flickr