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05/16/2019 | Press release | Distributed by Public on 05/16/2019 11:13

Big Bearish Option Bet Against Fiat Chrysler Ahead Of Auto Tariff Deadline

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Big Bearish Option Bet Against Fiat Chrysler Ahead Of Auto Tariff Deadline

Wayne Duggan 5/16/2019 11:39:02 AM

Fiat Chrysler Automobiles NV (NYSE: FCAU) shares are down 34 percent in the past year as fears over a global slowdown in the auto industry have weighed on investor sentiment.

Unfortunately for Fiat Chrysler bulls, an options trader made a large bearish bet on Thursday morning that things could get even worse for Fiat in the next week.

The Trade

On Thursday morning, Benzinga Pro subscribers received an options alert related to unusual trading volume in Fiat Chrysler puts.

The trader purchased of 1,847 put options at a $15 strike price that expire on May 24. The puts were purchased at the ask price of 56.6 cents and represent a $104,540 bearish bet at a break-even price of $14.34. The price suggests another 2.8 percent downside for Fiat Chrysler by the end of next week.

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.

Auto Tariff Deadline Looming

Fiat's latest earnings report out earlier this month did very little to inspire confidence in the company's near-term outlook. Operating profit was down 29 percent, and revenue was down 5 percent from a year ago. The bearish options trader may be anticipating further bearish trade war commentary from the White House, with U.S. President Donald Trump facing a May 18 deadline to decide whether or not to implement tariffs on European auto imports.

Trump is expected to delay the decision by up to six months, but he has a track record of unpredictability.

Because stock investors often use put options to hedge larger bullish stock positions, there's no way to be 100 percent certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the buys on Thursday totaled less than $105,000, the bearish bets on Fiat Chrysler in this case are unlikely to be a hedge.

Related Links:

Why $2.7M In Opko Put Buying May Not Be As Bearish As It Seems

How To Read And Trade An Options Alert