The Sizzling Solar Stock to Watch

Skepticism surrounds Sunedison Inc (NYSE:SUNE), despite its technical tenacity

Jun 19, 2015 at 11:49 AM
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We're coming off the hottest May on record (or, second-hottest depending on the source), and all signs suggest 2015 is easily on pace to beat out 2014 for the warmest year since the data began being compiled. As societies scramble to adjust to global warming, alternative energy stocks could come into play -- especially with a number of initial public offerings on the horizon. One such stock that has the potential to run higher in the near term is Sunedison Inc (NYSE:SUNE).

Already, SUNE has been a technical standout, boasting a 61% year-to-date lead. Yesterday, in fact, the stock topped out at a six-year high of $31.80, on reports its yieldco -- Terraform Global (GLBL) -- raised its IPO to up to $800 million. (Last night, GLBL said it priced its IPO at $38 per share.) Today, the security is pulling back from this notable milestone, down 0.4% at $31.40, but considering peak call open interest in the June series is located at the 31.50 strike, the security could be contained beneath this level through tonight's close, when the front-month contracts expire.

While there is a significant amount of open interest at the June 31.50 call (25,333 contracts to be exact), option traders have shown a growing interest in long puts in recent weeks -- although some of them may be protective in nature. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, SUNE's 10-day put/call volume ratio has jumped to 1.10 from 0.24 over the past two weeks. What's more, the current ratio ranks in the 82nd annual percentile, meaning puts have been bought to open over calls at a faster-than-usual clip. An unwinding of these bearish bets could help SUNE resume its longer-term uptrend.

This skepticism has spilled outside of the options pits, as well. Although short interest plunged 20.7% during the most recent two-week reporting period, it still accounts for more than 29% of SUNE's available float. In fact, it would take more than six sessions to cover the remaining shorted shares, at average daily trading levels, leaving the door wide open for a short-covering rally.

Sunedison Inc (NYSE:SUNE) could also benefit from an additional round of price-target hikes. On Tuesday evening, Needham -- which weighed in on First Solar, Inc. (NASDAQ:FSLR) this morning -- upped its target price to $36 from $34, territory not charted since September 2008. For the sake of comparison, the average 12-month price target on SUNE is $34.85, a lukewarm 11% premium to current trading levels.

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