SolarCity Corp (SCTY) Calls Hot Amid Unconfirmed Tesla Rumors

SolarCity Corp (SCTY) is higher today as the rumor mill churns

by Karee Venema

Published on Mar 30, 2015 at 2:40 PM
Updated on Apr 20, 2015 at 5:32 PM

M&A Monday has hit warp speed, and alternative energy concern SolarCity Corp (NASDAQ:SCTY) has popped 2.2% to $51.26, amid unconfirmed rumors that a cryptic tweet from Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk could be indicative of a possible partnership with SCTY. Meanwhile, in the equity's options pits, traders are showing a distinct preference for calls, with the contracts trading at 1.6 times what's typically seen at this point in the day, and outpacing puts by a 2-to-1 margin.

Drilling down, it appears speculators are gambling on even more gains during this holiday-shortened week, with possible buy-to-open activity detected at SCTY's weekly 4/2 50.50- 52-, and 52.50-strike calls. If traders are indeed initiating long positions here, the goal is for the equity to settle north of the strikes at this Thursday's close, when the weekly series expires.

Widening the sentiment scope reveals today's accelerated call volume is just more of the same. In fact, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.98 ranks in the 99th annual percentile. Simply stated, calls have been bought to open over puts with more rapidity just 1% of the time within the past year.

On the charts, SCTY has put in an uninspiring performance in recent months, churning between $48 and $60 since early November. What's more, since getting swiftly rejected by its 200-day moving average in mid-February, the shares have shed 13.6%. More recently, the equity has been staring up at its 80-day moving average, a trendline that appears to be containing today's advance. As such, it's possible that a portion of the recent call buying -- particularly at out-of-the-money strikes -- is a result of shorts hedging against any unexpected upside. Currently, 40.7% of SolarCity Corp's (NASDAQ:SCTY) float is sold short.

Daily Chart of SCTY Since October 2014 With 80-Day and 200-Day Moving Averages

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