Why Sunedison Inc (SUNE) and Vivint Solar Inc (VSLR) Are Soaring

An amended M&A amendment may give SUNE and VSLR a long-awaited boost

Dec 9, 2015 at 12:43 PM
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Solar energy producer Sunedison Inc (NYSE:SUNE) is trading 19% higher today at $4.11, after the company came to an amended merger agreement with Vivint Solar Inc (NYSE:VSLR). SUNE's acquisition of VSLR was first announced in July with a purchase price of approximately $2.2 billion.

Sunedison has been suffered heavy losses since mid-July, when the stock peaked at $33.45. The stock is currently down 78.9% in 2015, and has underperformed the S&P 500 Index (SPX) by more than 70 percentage points over the last three months. The shares also hit a roughly three-year low of $2.55 in late November.

Surprisingly, nine out of 14 brokerages still give SUNE a "buy" rating or better. And options traders continue to place bullish bets on the security. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Sunedison Inc's 10-day call/put volume ratio of 12.56 -- indicating nearly 13 calls bought to open for each put -- stands higher than 99% of similar readings in the past year.

However, nearly 34% of the stock's available float is sold short -- representing almost twice its average daily trading volume.This accumulation of bearish bets is up 5.7% from the prior reporting period. With short interest and buy-to-open call volume rising in tandem, it's possible that some of the recent call-buying on SUNE is linked to hedging activity by the shorts.

Vivint Solar Inc has been performing somewhat better, with today's 16.2% gain pushing the stock to a 5.7% year-to-date lead, at $9.75. After a strong first half of 2015, the past three months have been hard on the stock. Since the buyout bid from SUNE was a mix of cash and stock, the steep losses for SUNE shares dragged VSLR lower, and the takeover target hit an all-time low of $6.59 less than one month ago.

One more stock feeling the tailwinds of the amended agreement between Sunedison Inc (NYSE:SUNE) and Vivint Solar Inc (NYSE:VSLR) is one of SUNE's yieldcos, TerraForm Power Inc (NASDAQ:TERP). As part of today's news, TERP announced a reduced purchase price for VSLR's portfolio of residential rooftop solar systems. Two weeks ago, TERP shares hit an all-time low of $6.73, but the news has the stock up 28.4% at $11.12, and near-term options traders may be hoping for a continued rally to help erase some of TERP's 63.8% year-to-date loss. The stock has a Schaeffer's put/call open interest ratio (SOIR) of 0.52, which ranks higher than only 17% of readings over the past 12 months -- indicating a much stronger-than-usual preference for near-term calls relative to puts.

 

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