SolarCity Corp (SCTY) Call Options Heat Up on Funding Deal

SolarCity Corp (SCTY) is shrugging off a price-target cut at J.P. Morgan Securities

Sep 12, 2016 at 10:51 AM
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SolarCity Corp (NASDAQ:SCTY) is bucking the broad-market trend lower, after the alternative energy firm raised $305 million to fund solar projects. The news has apparently overshadowed a price-target cut to $21 from $25 at J.P. Morgan Securities, and persuaded bullish options traders that the stock could run higher over the short term.

Diving right in, SCTY call options are changing hands at twice the usual intraday rate. The most active strike by far is the September 17 call, which traders appear to be buying to open. By doing so, these speculators are expressing confidence that the solar stock will extend its run north of $17 by Friday's close, when the series expires. At last check, SCTY was up 1.5% at $17.02.

Today's trend toward call buying represents a break from the recent pattern witnessed at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). After all, options players at those exchanges have bought to open more than three puts for every call in the past two weeks. The resultant put/call volume ratio of 3.58 rests just 3 percentage points from an annual high.

This put bias is especially evident among traders targeting near-the-money SCTY options in the front three-months' series. The stock's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) stands at a top-heavy 2.61, with puts more than doubling calls.

Meanwhile, the aforementioned price-target reduction is reflective of the the brokerage crowd's general negativity toward the shares. Ten of 11 analysts rate SCTY either a "hold" or a "strong sell." However, the stock's consensus 12-month price target of $23.27 represents a nearly 37% premium to the current perch, suggesting future price-target cuts may be in the cards.

After all, in spite of this morning's bounce and a high-profile buyout arrangement, SolarCity Corp (NASDAQ:SCTY) is a long-term technical laggard. Year-to-date, the solar stock has surrendered roughly two-thirds of its value, and isn't too far from its mid-February annual low of $16.31.

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