Whole Foods Pact Fails to Win Over SolarCity Corp (SCTY) Skeptics

SolarCity Corp (SCTY) option traders think the stock will reverse lower after gapping higher on the company's deal with Whole Foods Market, Inc. (WFM)

by Alex Eppstein

Published on Mar 8, 2016 at 10:49 AM
Updated on Jun 24, 2020 at 10:16 AM

SolarCity Corp (NASDAQ:SCTY) is soaring after inking a deal to install solar power systems at Whole Foods Market, Inc. (NASDAQ:WFM) locations across the country. At last check, the solar stock is 5% higher at $25.38, while the organic grocer has picked up 0.5% to trade at $33.77. From the looks of it, however, SCTY option traders aren't buying the bounce.

Diving right in, buy-to-open activity is detected at SolarCity's April 26 put. By purchasing these positions, the traders expect the stock to settle south of $26 at the close on Friday, April 15, when the back-month options expire. 

Today's penchant for SCTY put buying is a break from the recent bullish trend observed in the stock's options pits. Specifically, during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 2.74 calls have been bought to open for each put -- with the corresponding call/put volume ratio registering in the 78th percentile of its annual range.

However, SolarCity Corp hasn't necessarily warranted this optimism. Despite recent gains sparked by buyout rumors, the stock has lost roughly half its value in 2016. Should SCTY resume this trend lower, a capitulation among bullish bettors could exacerbate selling pressure.

Turning quickly to WFM, the stock had a nice start to the week yesterday, and has now muscled into positive year-to-date territory. If this upward trend continues, it could potentially put pressure on brokerage firms and short sellers alike. After all, 86% of analysts rate Whole Foods Market, Inc. a "hold" or worse, and 11.2% of its float is sold short -- which would take roughly one week to buy back, at the stock's average daily volume.

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