Buy Calls to Bet on an Enphase Energy Bounce

Short-term ENPH options are relatively cheap right now

Sep 5, 2019 at 1:00 PM
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The shares of Enphase Energy Inc (NASDAQ:ENPH) gapped higher in late July after the home alternative energy solutions specialist turned in a strong earnings report. ENPH stock went on to hit a record high of $35.42, before retreating to a key technical region amid stiff broad-market headwinds. ENPH could be on the verge of another sharp upside move, and call options could be an attractive way to bet on the stock's next move higher.

Diving deeper, Enphase Energy shares are testing support in the $27.30 region, home to their post-bull gap lows from July 31. This region currently coincides with the stock's rising 40-day moving average -- a trendline that's had bullish implications in the past.

Specifically, there have been eight other times in the past three years ENPH stock has come within one standard deviation of its 40-day moving average after a lengthy stretch above it, defined as trading north of the trendline 60% of the time in the last two months, and in eight of the past 10 sessions. Following these previous signals, the equity was 19.5% higher, on average, one month out, with 75% of the returns positive. Another move of this magnitude would put the shares near $31, based on their current perch at $25.76, down 7.5% today.

Short sellers started throwing in the towel during the stock's longer-term climb. Short interest on Enphase Energy is down 56% since the Jan. 1 reporting period -- creating a steady steam of buying power that has powered the shares to a 470.8% year-to-date lead. There's still sideline cash available, too, considering it would take shorts almost three days to cover the remaining 11.24 million shares, at the average pace of trading.

ENPH's near-term options are pricing lower-than-usual volatility expectations at the moment, making it a prime time to buy call options to bet on a repeat of history. ENPH's Schaeffer's Volatility Index (SVI) of 75% ranks in the 24th annual percentile. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) reading is docked at an elevated 83 (out of a possible 100), meaning Enphase Energy has tended to make outsized moves relative to what the options market has priced in -- ideal for maximizing the benefit of leverage.

epnh stock daily price chart on sept 5

 

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