SunPower Corporation (SPWR) Rally Has Option Demand Surging

Thanks to a major round of positive news, SunPower Corporation (SPWR) is surging

by Josh Selway

Published on Dec 16, 2015 at 11:32 AM
Updated on Jun 24, 2020 at 10:16 AM

There's a lot to cheer about today if you're a SunPower Corporation (NASDAQ:SPWR) bull, as a wide range of news has the stock 16.5% higher at $28.46. Solar stocks continue to reap the benefits from the recent international climate change agreement, and hopes are high for an extension to an investment tax credit when the new federal budget is finalized. Finally, there's news specific to SPWR, as the firm announced a power purchase agreement (PPA) with Grupo Aeroportuario del Sureste (ASUR) that will begin in 2016. 

While that's a lot to take in, option bulls are wasting little time getting in on the action. Calls are trading at four times the amount usually seen at this point in the day, with today's volume arriving in the 99th annual percentile, according to Trade-Alert. What's more, SPWR's 30-day at-the-money implied volatility of 65.1% arrives in the 96th annual percentile, confirming elevated demand for the stock's short-term options. 

This affinity for call options is nothing new for SPWR traders. Over the past 10 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), nearly 7,400 calls have been bought to open, compared to fewer than 1,600 puts. The resulting 10-day call/put volume ratio of 4.72 is just 7 percentage points from an annual high. In short, there's been a greater-than-usual appetite for long calls over long puts lately. 

The stock's Schaeffer's put/call open interest ratio (SOIR) reaffirms this call bias. This indicator comes in at 0.45 -- meaning call open interest more than doubles put open interest, among options expiring in three months or less -- and stands lower than 84% of all readings from the past year. This reveals short-term speculators are more call-skewed than normal.

However, the possibility of short sellers hedging needs to be noted. Specifically, over 12% of the equity's float is sold short, representing more than six times SPWR's average daily trading volume. In fact, short interest increased by 15.6% over the two most reporting periods. 

Finally, a closer look at the charts shows SunPower Corporation (NASDAQ:SPWR) has experienced a volatile year. From its annual high of $35.11 in late April, the stock is almost 19% lower. When you narrow the technical scope, however, the picture is much brighter: SPWR is 42% higher during the fourth quarter. 

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