Traders are piling into hedges on Constellation Brands, the nation's biggest wine company, as wildfires rage through California wine country.
Constellation Brands, the biggest wine company in the US and a major producer of brands like Robert Mondavi, has a lot at stake right now as wildfires decimate California's wine country.
And that fact is not lost on stock traders. Their nervousness around the situation has caused a surge in hedging costs on the stock.
The measure in question looks at the cost of options protecting against a 10% decline over the next month, relative to wagers on a 10% increase. This indicator has spiked as the wildfires recently began spreading through Northern California's wine country.
Constellation Brands, which operates 18 different wineries, closed its tasting rooms in Napa Valley and Sonoma earlier this week.
Another complicating factor is that Constellation Brands is the third-most popular S&P 500 stock for hedge funds, according to data compiled by Bloomberg. With 27.7% of its outstanding float owned by them, weakness in the company's shares could affect quarterly results for some firms.
The negative shift in investor sentiment could also quickly derail the positive effect of Constellation Brands' better-than-expected earnings report last week. The company, which also sells imported Mexican beers like Corona and boasts a growing craft beer business, saw its stock climb 4% in a single day. This week, the stock has dropped more than 1%.
It remains to be seen whether the other areas of Constellation Brands' vast alcoholic empire can offset the pressures felt in the company's wine business. At this point, it's safe to say traders aren't taking any chances.