PG&E Braces for Major Drop After Bankruptcy Ruling

PCG stock is headed toward levels not seen since late January

PG&E Corporation (NYSE:PCG) stock is down 28% in electronic trading, set to open near levels not seen since late January. The negative premarket price action comes after a federal judge late Friday ruled the California utility firm could retain the sole rights to present its Chapter 11 bankruptcy plan, ending efforts from two major PCG stakeholders to submit alternative ideas to reorganization.

Looking closer at the charts, PCG stock had been chopping higher off its Jan. 15 record low of $5.07, topping out above $25 in late June. However, the shares ran into stiff resistance at their 180-day moving average, and are down 43% from this recent peak through last Friday's close at $14.28.

PG&E options traders have been positioning for more losses. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 15,623 calls over the past 10 days, compared to 5,816 calls. The resultant put/call volume ratio of 2.69 ranks in the 96th annual percentile, meaning the rate of put buying relative to call buying has been accelerated.

This skepticism is seen outside of the options pits, too, where a healthy 6.7% of PCG stock's float is sold short. Plus, eight of 11 analysts maintain a lukewarm "hold" rating on the security.