SunEdison Inc (SUNE) Bulls Bite on Buyout Rumors

Sunedison Inc (SUNE) is seeing a rare spike in call buying

by Andrea Kramer

Published on Jan 28, 2015 at 1:17 PM
Updated on Apr 20, 2015 at 5:32 PM

Silicon wafer maker Sunedison Inc (NYSE:SUNE) calls are in demand, with some media outlets reporting takeover chatter. Specifically, SUNE calls are trading at twice the average intraday clip, and the stock's 30-day at-the-money implied volatility has spiked 7.2% to 60.6%. In other words, it looks like option traders are gambling on a jump for SUNE in the near term.

Digging deeper, it appears speculators are buying to open the weekly 1/30 20.50-strike calls and the February 19.50 calls. By purchasing the former, the buyers expect SUNE to topple $20.50 by Friday's close, when the options expire. Buyers of the latter hope SUNE muscles north of $19.50 by the close on Friday, Feb. 20, when front-month options cease trading.

Today's appetite for bullish bets marks a shift in sentiment among the options crowd. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 2.08 stands just 5 percentage points from an annual peak. Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.66 registers in the 99th percentile of its annual range, suggesting short-term traders are more put-heavy than usual right now.

Amid the buyout buzz, SUNE jumped as high as $20.33 in early trading, but has since erased its gains to trade 3.1% lower at $19.22. However, since hitting an annual low of $13.09 in mid-October, Sunedison Inc (NYSE:SUNE) has rallied nearly 47%, with pullbacks contained by its 60-week moving average. Should the security extend its advance, an unwinding of pessimism in the options pits could add fuel to the fire. In addition, short interest represents seven sessions' worth of pent-up buying demand, at SUNE's average pace of trading -- plenty of fuel for a short-covering rally.

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