Option Traders Take Notice as SolarCity Corp, Sunedison Inc Swing Wildly

SolarCity Corp (NASDAQ:SCTY) and Sunedison Inc (NYSE:SUNE) have both bounced back from annual lows

Aug 24, 2015 at 2:19 PM
facebook twitter linkedin


It's been a volatile day for the broader market, with the S&P 500 Index (SPX) at one point down triple digits, but more recently rebounding off its earlier lows -- with some giving partial credit to upbeat comments from one high-profile CEO. Among individual stocks, SolarCity Corp (NASDAQ:SCTY) and Sunedison Inc (NYSE:SUNE) have staged their own impressive reversals -- and some pretty interesting activity has materialized in their option pits, as well.

SCTY plunged to an annual low of $34.65 out of the gate -- and continues to be on the short-sale restricted (SSR) list following Friday's 12.8% drop -- but was last seen 9.2% higher at $44.75. The relief rally springs from comments at Morningstar, which defended the firm's business model against criticism from Kynikos Associates, and reaffirmed a $73 price target. Specifically, Morningstar said SCTY is not a subprime financing company, citing its customers' historically high credit scores.

In the options pits, the stock's puts are flying off the shelves at five times the expected intraday rate, and, amid the roller-coaster price action, its 30-day at-the-money (ATM) implied volatility (IV) touched an annual high earlier. Digging deeper, SCTY's September 40 put is the most active strike, and it looks like some traders are buying to open new positions -- expecting the shares to resume their downtrend through front-month expiration, at the close on Friday, Sept. 18. Meanwhile, it appears other speculators could be combining this out-of-the-money put with the September 47.50 strike to initiate a long put spread.

This put-bias is business as usual for SolarCity Corp. The equity's 10-day put/call volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 3.10 -- with long puts more than tripling calls. Also, the ratio is higher than all comparable readings taken in the previous year.

Following suit, SUNE fell to an annual low this morning -- at $9.04 -- before bouncing back sharply. At last check, the stock was 4% higher at $11.15, after being up as much as 12%. Like SCTY, SUNE is still SSR, following a 12.3% intraday plunge on Friday.

More broadly speaking, short selling has been extremely popular on the security. In fact, over one-quarter of SUNE's float is sold short, representing almost one week's worth of pent-up buying power, at typical trading levels.

In today's options pits, Sunedison Inc's 30-day ATM IV reached an annual peak of 138.2% earlier. Of note, it appears one long-term bull may have rolled down her long January 2016 18-strike call to the 14 strike, while another short-term bear may have rolled his long September 11 puts down and out to the October 8 strike.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners