SolarCity Corporation (SCTY) Call Options Catch Fire

SolarCity Corp (SCTY) is enjoying sector tailwinds. Are option traders are showing a change of heart?

Feb 2, 2015 at 2:25 PM
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Amid a solar-sector rally, SolarCity Corp (NASDAQ:SCTY) is up 7.8% at $52.40. As such, bullish bets are heating up in the options pits, with intraday call volume running at seven times the normal clip. In fact, SCTY calls have outpaced puts by a nearly 4-to-1 margin thus far.

The stock's 30-day at-the-money implied volatility has popped 12.6% to 59.5%, underscoring the surging demand for short-term contracts. February-dated calls account for the four most active strikes, and weekly 2/6 calls make up four of the top 10 contracts so far.

Digging deeper, it looks like some traders are buying to open the February 50 and 55 calls, amid hopes for SCTY to extend today's rally through the close on Friday, Feb. 20, when front-month options expire. The 50-strike calls are currently 2.4 points in the money, while the 55-strike calls will move into the money if SCTY topples $55 within the option's lifetime.

In light of SCTY's jump today, delta on the February 50 call has surged to 0.65 from 0.42 at Friday's close, implying a roughly 65% chance of the contract expiring in the money. Delta on the February 55 call has more than doubled, to 0.38 from 0.14.

Today's affinity for SCTY calls couldn't be further from the recent trend. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.77 sits just 3 percentage points from an annual high, suggesting buyers have picked up SCTY puts over calls at a rapid-fire rate during the past two weeks.

Meanwhile, short interest accounts for 37.4% of SCTY's total available float, representing more than eight sessions' worth of pent-up buying demand, at the stock's average pace of trading. Against this backdrop, it's possible that some of today's out-of-the-money call buying may be attributable to hedging activity among the shorts.

On the charts, SolarCity Corp (NASDAQ:SCTY) is on pace to end atop both its 10-day and 20-day moving averages for the first time since Dec. 29. Off the charts, the solar sector -- including First Solar, Inc. (NASDAQ:FSLR), Canadian Solar Inc. (NASDAQ:CSIQ), and Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) -- is enjoying a lift in the wake of China's plans to increase renewable energy.


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