Schaeffer's Trading Floor Blog

Charting the Plug Power Inc (PLUG) Roller Coaster

Examining the ups and downs of PLUG

by 3/14/2014 7:27 AM
Stocks quoted in this article:

If Tesla Motors Inc's (NASDAQ:TSLA) 60% pop in 2.5 months isn't quite volatile enough, you're in luck. I hereby present Plug Power Inc (NASDAQ:PLUG)!

PLUG and Schaeffer's Volatility Index

PLUG closed 2013 at $1.55. The stock then tripled in a little over a week, closing at $4.55 on Jan. 8. That was followed by a halving over the next three weeks. As recently as Feb. 24, PLUG closed at $3.69.

And then, as you can see above, things really got interesting. PLUG hit a high of $11.72 this past Tuesday, then lost over half its value intraday on Wednesday before lifting again on Thursday after the earnings report.

The stock closed at $8 on Thursday, which represents a 416% gain in 2014, but a near 50% loss off a poorly timed buy all of two days ago.

Dizzy yet?

The "VIX" of PLUG is about 170, which sounds enormous -- in anything but a $5 biotech with FDA news on tap. At those prices, the market anticipates a 10% range or so each day. But given the ride we just noted, it's actually rather cheap. The 10-day realized volatility in PLUG is now 365%, which means that looking backwards, it's moving at more like a 22% per-day clip*.

*I say "10% per day," so as to better visualize the backdrop. Implied volatility (IV) of 160% or so actually means that the market expects PLUG to move within a 10% range on 68% of trading days.

As you can see above, we're still a ways away from the peak IV in PLUG of about 270%. By VIX methodology, it actually hit 317% IV on Dec. 16. It's a bit of an apples-to-oranges comparison, as PLUG was a $2 stock then, so the actual dollars involved in buying options on a stock that low can produce some silly sounding IV numbers.

If you're looking for a bullish case here, well, it's a good sign when volatility explodes along with a stock and all they want to do is buy puts. And that's what's gone on. Here's the Schaeffer's put/call open interest ratio (SOIR):


It's also a good sign to see swiftly rising short interest.

PLUG Short Interest Ratio

And did I mention PLUG is hard to borrow? Judging by the options board, it looks like the cost is about 5% for just a month.

Names that move exponentially like this tend to feel gravity pull them back to Earth at some point. But there's often a major squeeze first. And the numbers here sure suggest that's taking place now. It's probably silly at any of these prices, though who really knows? The point is that if it's silly at $X, there's no particular reason it can't go to Extra Special Silly at 2 x $X. And playing for an implosion here looks like a very popular idea. Count me out.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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