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SunPower Corporation (SPWR) Call Options Sizzle

SPWR option traders anticipate even higher highs for the stock

by 2/19/2013 12:40 PM
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The shares of SunPower Corporation (NASDAQ:SPWR - 13.36) jumped to a new annual high of $13.66 today, and option traders are wagering on even more upside for the alternative energy concern. Around midday, SPWR has seen close to 7,600 calls cross the tape -- about three times its average intraday call volume, and more than double the number of SPWR puts exchanged.

Most popular have been the March 13 and 15 calls, which have seen around 2,000 and 1,800 contracts change hands, respectively. Implied volatility on the 13-strike call was last seen more than 10 percentage points higher, and volume has exceeded open interest at the March 15 strike, both signs of fresh initiations. Plus, the majority of the calls have crossed at the ask price, elevating our suspicions of newly bought bullish bets.

Digging even deeper, the March 13 calls have traded at a volume-weighted average price (VWAP) of $1.02, meaning the buyers will make money if SPWR topples the $14.02 level (strike plus VWAP) by mid-March, when the newly front-month options expire. Meanwhile, the VWAP of the higher-strike calls is $0.72, indicating a breakeven level of $15.72 -- representing expected upside of 17% to SPWR's current share price. However, even if SPWR takes a breather from its recent rally -- the stock has more than doubled in 2013 -- the most the buyers can lose is the initial premium paid for the calls.

Considering SPWR has outperformed the broader S&P 500 Index (SPX) by 162 percentage points during the past three months, it's no surprise to find that most short-term options traders are already in the bullish camp. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.62 indicates that calls are considerably more prevalent than puts among options expiring within the next three months. What's more, this ratio registers in the 24th percentile of its annual range, suggesting short-term speculators are more call-heavy than usual at the moment.

At last look, SPWR has trimmed its lead to a still respectable 16.7%. So far this month, the security has rallied 71.8%, and is on pace to end atop its 20-month moving average for the first time since mid-2011. However, the equity's Relative Strength Index (RSI) now rests at 75 -- in overbought territory, suggesting a rally respite could be in the short-term cards.


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