Options Hot as TerraForm Power Inc Feels Sunedison's Heat

TerraForm Power Inc (NASDAQ:TERP) is sinking today, amid parent company Sunedison Inc's (NYSE:SUNE) bankruptcy woes

Apr 4, 2016 at 1:57 PM
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After soaring last Friday on Appaloosa Management's vote of confidence, shares of TerraForm Power Inc (NASDAQ:TERP) are falling today, as parent company Sunedison Inc  (NYSE:SUNE) battles bankruptcy flames. What's more, while TERP this morning said it has been given more time to file its annual report, the yieldco also said it is suing SUNE for misappropriating funds. Against this backdrop, TERP is down 7.7% at $9.08 -- and on the short-sale restricted list -- and options volume on the solar stock has jumped to two times the expected intraday rate.

By the numbers, 1,420 call options are on the tape at last check, compared to 1,078 put options. Although still relatively light on an absolute basis, 900 contracts -- or, nearly two-thirds of the day's call volume -- have traded at TERP's September 12.50 strike. It looks as if new positions are being purchased here, as speculators bet on a big bounce for TERP through September options expiration.

More broadly speaking, today's call-heavy session marks a change of pace in TERP's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), option traders have bought to open 1.4 puts for each call over the past two weeks. What's more, total put open interest of 33,379 contracts sits in the 92nd annual percentile, versus call open interest of 13,532 contracts -- in the bottom third percentile of its annual range.

This skepticism is seen elsewhere on Wall Street, as well. In fact, although short interest dropped 4.1% in the most recent reporting period, it still accounts for 25% of TERP's available float. In light of this, today's action at the out-of-the-money September 12.50 call could be a result of short sellers hedging their bearish bets against any unexpected upside.

Longer term, though, TERP skeptics -- both in and out of the options pits -- have been sitting pretty. Year-over-year, shares of TerraForm Power Inc (NASDAQ:TERP) have surrendered 77% of their value. Plus, recent rally attempts have been quickly halted by TERP's 100-day moving average -- a trendline that has ushered the stock lower since mid-July.

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