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SunEdison Inc (SUNE) is slumping today in sympathy with the rest of the broader equities markets, off 1.4% to trade at $23.42. Meanwhile, options volume is running fast and furious, at nearly three times the average intraday rate.
Although calls have the advantage over puts on an absolute basis, many of the call traders are not of the typical "vanilla" variety. Specifically, SUNE's most active option is the weekly 8/8 26-strike call, where a majority of the 7,450 contracts traded so far appear to have been sold to open.
By writing the contracts, these individuals expect the shares to remain below the strike through the close on Friday, Aug. 8, when the weekly contracts expire. If that hope materializes, the calls will be rendered worthless, and the sellers will retain the initial premium collected as profit. However, if SUNE shoots past $26 during the next four weeks, the traders may be at risk of assignment.
On the charts, SUNE has been on a tear, tacking on over 79% year-to-date, and cruising higher atop support from its 10- and 20-week moving averages. Yesterday, in fact, the equity hit a fresh five-year high of $24.35. As such, it's possible some of today's traders are employing a covered call strategy to offset a potential post-earnings pullback a few weeks from now.
Speaking of which, SunEdison Inc (SUNE) is tentatively scheduled to enter the earnings confessional during the first week of August. Looking back eight quarters, the company's bottom-line results have only topped the Street's consensus view half of the time; nevertheless, the stock has added 7.2%, on average, in the week after reporting.