Equifax has already plunged 18% since it announced last week that hackers may have the personal details of nearly half the US population.
Options traders are betting that this is only the start.
As of Monday, the options contracts with the largest outstanding bets on the stock profit from a decline of 15% to 19% over the next five weeks, according to data compiled by Bloomberg.
To get more specific, the two contracts represent wagers that Equifax’s stock price — which closed at $US123.23 on Friday — will fall to either $US100 or $US105, respectively, by October 20.
Outsized trading in Equifax put options is also manifesting itself in myriad other ways.
- Traders are paying the highest premium since July 2015 to protect against a 10% decline in the stock over the next three months, relative to wagers on a 10% gain. The measure, known as skew, is also at multi-month highs for other time frames.
- Second, put volume on Equifax’s stock has spiked to roughly three times the previous highest on record. Meanwhile, the implied volatility spread between Equifax’s stock and an exchange-traded fund tracking the benchmark S&P 500 has risen to the highest in more than six years. Implied volatility reflects investor expectations of price swings.
No matter how you slice it, that’s an overwhelming amount of negative activity around Equifax’s stock on a forward-looking basis.
“There’s a ton of put trading in this thing, and they’re all buyers,” Mark Sebastian, trader and founder of Option Pit, a Chicago-based education and consulting firm. “Lots and lots of people think this stock is going to drop.”
In order to best understand the issues facing Equifax, let’s break down the news of the past few days, relating not only to the breach itself but also the company’s bungled response to it:
- The initial announcement of the breach on Sept. 7, which disclosed that the personal details of up to 143 million US consumers were potentially accessed by hackers between mid-May and July.
- After news of the breach became public, it was revealed that three senior executives at Equifax, including the company’s chief financial officer, sold almost $US2 million worth of the company’s shares just days after it learned of the hack. The company has since told Business Insider by email that the executives had no knowledge that an intrusion had occurred at the time they sold their shares.
- Equifax set up a site to let people know if their personal information had been exposed, but it ended up infuriating people, many of whom failed to get a clear response.
- In turn, there was some confusion over whether the site was legitimate and anger over the way it was rolled out.
- Equifax has had to clarify things at least three times, already faces lawsuits from customers, and inquiries from lawmakers.