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Option Idea of the Week: SunPower Corporation (SPWR)

SPWR's recent dip presents a buying opportunity

by 1/31/2014 10:25:06 AM
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SunPower Corporation (NASDAQ:SPWR) is a California-based solar company that's been heating up on the charts. From a longer-term perspective, the stock has more than quadrupled during the past year, touching a nearly five-year high of $36.25 in mid-January. Since then, the equity has pulled back to its 80-day moving average, which acted as a launching pad in 2013, and could once again send the shares -- last seen at $32.31 -- higher. Against this backdrop, and considering the skepticism still surrounding the equity, now looks like an opportune time to gamble on more gains for SPWR.

Daily Chart of SPWR since April 2013 with 80-Day Moving Average

Despite outperforming the broader S&P 500 Index (SPX) by nearly 11 percentage points during the past month, SPWR remains plagued by pessimism. Short interest rose 5.1% during the most recent reporting period, and now accounts for nearly one-third of the stock's total available float. In fact, at the security's average pace of trading, it would take about a week to buy back all of these bearish bets. Should SPWR continue to light up the charts, a rush to cover by the shorts could add fuel to the fire.

Meanwhile, fewer than half of the analysts following SPWR consider it worthy of a "buy" or better rating. Plus, the average 12-month price target on the equity sits at $32.88, representing a small premium to SPWR's current price. A round of upgrades and/or price-target hikes could lure more buyers to the table.

Elsewhere, option buyers have been picking up bearish bets at a rapid-fire clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.32 ranks higher than 72% of all other readings from the past year, suggesting traders have purchased puts over calls at an accelerated pace during the past two weeks. An unwinding of skepticism in the options pits could also translate into a contrarian boon for SPWR.

On the fundamental front, the firm is slated to report fourth-quarter earnings after the close on Wednesday, Feb. 12. SunPower has surpassed analysts' per-share profit projections in each of the last eight quarters, and averages a gain of 2.4% in the week after reporting earnings.

Speculators interested in rolling the dice on more upside for SunPower Corporation (NASDAQ:SPWR) could consider buying the in-the-money June 26 call, which was last asked at $8.25. More conservative players could implement a bull call spread -- thereby limiting risk -- by simultaneously selling the out-of-the-money June 42 call, which was last bid at $1.93.

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