A Well-Timed Bullish Bet on SolarCity Corp (SCTY)

SolarCity Corp (SCTY) is soaring on a potential merger with Tesla Motors Inc (TSLA)

Jun 22, 2016 at 9:37 AM
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SolarCity Corp (NASDAQ:SCTY) is soaring this morning, last seen up about 10.5% at $23.42 on news that Elon Musk's Tesla Motors Inc (NASDAQ:TSLA) offered to buy the company in an all-stock deal valued between $26.50 and $28.50 per share -- as much as a 34.5% premium over SCTY's Tuesday close of $21.19. Technically, SCTY had been having a dismal year, off 58.5% at yesterday's settlement, and most traders have been playing the stock accordingly. But it looks like one bullish speculator placed a particularly well-time options bet yesterday.

Specifically, a trader bought to open a sweep of more than 1,500 October 30 calls on Tuesday afternoon, for $1.13 apiece. By purchasing these calls, the trader bet that the shares of SCTY would rally some 42% to break out above the $30 level by the close on Friday, October 21, when the options expire. While the calls are still out of the money at the moment, they're now being asked at $1.55 -- a premium to yesterday's purchase price -- good news for the option buyer, provided he wasn't a short seller purchasing upside protection.

Other options traders may be heading for the exits today, as bearish bets have prevailed in recent weeks. Over the last 10 trading days, SCTY's July 25 and 24 calls saw the largest increases in open interest. However, it appears some of these positions were sold to open, according to data from the major exchanges. That means sellers of the calls were betting on the strikes to serve as short-term ceilings for the shares. And looking more broadly, the stock's 50-day put/call volume ratio of 1.38 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 79% of the past year's readings.

Short sellers may also be kicking rocks today as SCTY soars. While short interest slipped in the most recent reporting period, these bearish bets still account for nearly 38% of the stock's total float, or nearly a week's worth of trading, at SolarCity Corp's (NASDAQ:SCTY) average daily volume.

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