Schaeffer's Trading Floor Blog

Pessimism Persists On Rallying SunPower Corporation (SPWR)

Option traders and shorts are skeptical of SPWR, but analysts aren't

by 5/29/2014 3:11 PM
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SunPower Corporation (NASDAQ:SPWR) has been electric on the charts. At last check, the stock was 2.6% higher to trade at $34, bringing its annual gain north of 70%. Also impressive: Since hitting a year-to-date low of $25.38 on April 15, the shares have tacked on roughly 34%. However, that hasn't stopped bearish speculators -- both inside and outside of the options pits -- from showing significant interest in the alternative energy issue.

For starters, during the last 10 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SPWR has racked up a put/call volume ratio of 1.51, with long puts easily outpacing long calls on an absolute basis. More significantly, the ratio sits at the top of its 12-month range, revealing a much stronger-than-usual preference for bearish bets over bullish in recent weeks. In light of the equity's outperformance, some of this recent put buying -- particularly at out-of-the-money strikes -- may be the work of shareholders hedging their bullish bets. If the shares can sustain their positive momentum, however, the "vanilla" put buyers could be forced to hit the exits, creating tailwinds for SPWR. On a separate but related note, the stock's Schaeffer's Volatility Index (SVI) of 41% rests at a 52-week low, meaning short-term options haven't been this inexpensive in the past year, from a volatility standpoint.

Short sellers haven't been shy toward SunPower, either. While short interest fell nearly 8% during the last reporting period, it still represents 23% of the equity's outstanding float. In fact, at the stock's average daily trading volume, it would take almost a week to buy back the shorted shares. In other words, the door is wide open for a potential short-squeeze situation to materialize.

That's not to say everyone is bearish toward SunPower Corporation (NASDAQ:SPWR). In fact, the experts on Wall Street are generally bullish toward the security. For starters, seven of the stock's covering analysts give it a "strong buy" rating, leaving just four "hold" recommendations -- with not a single "sell" opinion in sight. Additionally, the average 12-month price target for SPWR is $37.32, representing a solid 10% premium to the current share price.

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