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SunPower Corporation's (NASDAQ:SPWR) options pits experienced an influx of trading activity last Friday, particularly on the call side. Specifically, about 14,000 contracts traded, which is roughly four times the norm and nearly 20 times the session's put volume. However, most of the action can be traced to a two-legged, neutral-to-bearish transaction that involved identically sized blocks of January 2014 27-strike calls and March 27 calls.
During the afternoon hours at the NASDAQ OMX PHLX (PHLX), a single trader bought a 5,300-lot of the January-dated calls near the ask price, at $1.95 each. Open interest at the strike fell by 2,650 positions over the weekend, however, indicating the calls were likely purchased to close. At the same time, the speculator sold a 5,300-lot of the March calls near the bid price, at $2.65 each. Open interest at this strike picked up nearly 5,000 contracts, suggesting the contracts were sold to open. Long story short, Friday's big trader apparently rolled out his neutral-to-bearish bet by two months for a net credit of $0.70 per pair of contracts.
Given the short call strategy, this individual is gambling on SunPower shares remaining below $27 throughout the calls' lifetime. (If he owns the shares already, and is simply selling premium to generate income, the calls are considered "covered.") The stock is up 3.5% this morning at $24.45, so there's a 10.4% buffer between its current perch and the strike price. If the solar-panel concern spins its wheels from now through March 21, when the written calls expire, the neutral-to-bearish bettor will pocket the premium received -- again, that's $0.70 per pair of options. However, if the shares ascend past the strike price, the trader risks being assigned -- in which case, he'll be forced to sell the shares for $27 apiece, no matter how high they've risen. Thus, the potential downside on the trade is theoretically unlimited, as it's tied to the underlying's value.
Frankly, betting against SunPower Corporation (NASDAQ:SPWR) could be a risky proposition. The shares have more than quadrupled in 2013 alone. What's more, it hasn't been that long since the security was perched above $27; the shares last traded above that mark on Aug. 1, when they sank in spite of a 37-cent-per-share earnings beat the day before.
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