SolarCity Corp (SCTY) Option Traders Eye More Tesla-Induced Gains

SolarCity Corp (NASDAQ:SCTY) is higher today, on rumors Tesla Motors Inc's (NASDAQ:TSLA) Model 3 will feature solar panels

by Karee Venema

Published on Mar 31, 2016 at 3:27 PM

Anticipation surrounding Tesla Motors Inc's (NASDAQ:TSLA) Model 3 reveal is helping to lift a number of stocks today, and SolarCity Corp (NASDAQ:SCTY) is no exception. Specifically, the shares are up 6.1% at $24.74, as rumors swirl that a now-deleted tweet from TSLA CEO Elon Musk suggested the company's new low-priced electric car will feature SCTY solar panels. While option traders won't know for sure until tonight when the Model 3 prototype is unveiled, they are betting on SCTY to extend today's upside through tomorrow's close.

Taking a quick step back, SCTY calls are trading at 1.2 times the average intraday rate today -- with 16,000 contracts on the tape. The stock's weekly 4/1 series is commanding attention, with buy-to-open activity detected at the 22.50-, 25-, 25.50-, and 27-strike calls. By purchasing new positions, call buyers expect SCTY to settle tomorrow's session -- when the weekly series expires -- north of the respective strikes.

Widening the sentiment scope reveals options traders have shown a preference for long calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SCTY sports a top-heavy 20-day call/put volume ratio of 2.12. With 40% of the stock's float sold short, though, some of this call buying could be a result of shorts hedging against any unexpected upside.

In fact, today's positive price action marks a stark contrast to SCTY's longer-term trend. Since hitting its most recent high of $58.87 in mid-December, SolarCity Corp (NASDAQ:SCTY) has shed nearly 58%. What's more, today's rally is running out of steam near its 50-day moving average -- a trendline that has been ushering the stock lower since mid-January.

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