Eleventh-Hour Bears Take Aim at Sliding SolarCity Corp (SCTY)

SolarCity Corp (NASDAQ:SCTY) is having its worst day on the charts since October

by Alex Eppstein

Published on Jan 14, 2016 at 2:09 PM
Updated on Jan 14, 2016 at 2:22 PM

For a while there, it seemed like SolarCity Corp (NASDAQ:SCTY) had righted its ship -- soaring 145% from its November lows to its December highs. However, the stock has come crashing back down to Earth. Today, shares of the alternative energy firm have plummeted 14.5% to trade at $36.55, marking their largest single-day decline since late October, after Bernstein said "new sources of capital must be identified if the company is to continue to grow." 

With SCTY on the short-sale restricted list, bears are looking for other avenues in which to place downside bets. As such, puts are trading at 1.9 times the usual intraday clip, and twice the rate of calls. In the lead is the January 2016 40-strike put, where it appears speculators are purchasing fresh positions, anticipating extended losses through tomorrow's closing bell -- when the front-month options expire.

This marks quite a departure from the recent trend witnessed among SCTY traders. During the past 50 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has amassed a call/put volume ratio of 1.64. Not only does this mean bullish bets are outstripping bearish ones on an absolute basis, but with the ratio sitting in the 81st annual percentile, it means the pace of call buying is historically elevated.

Moving along, while short selling isn't an option today, a sizable portion of SCTY's float -- 45.3%, to be specific -- is already dedicated to short interest. At average daily volumes, it would take approximately one week for these bears to cover their bets. Of course, it's possible some short sellers may have sought to hedge their positions in recent weeks by way of protective calls, helping to explain the aforementioned option trading trend.

Last but not least, the brokerage crowd is extremely optimistic toward SolarCity Corp (NASDAQ:SCTY). About 85% of analysts have handed out "buy" or better assessments -- with not a single "sell" rating on the books -- while the stock's consensus 12-month price target of $68.88 stands at an 87% premium to current levels. Suffice it to say, it wouldn't be a shock to see SCTY get hit with more bearish brokerage attention, suggesting its future looks far from bright.

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