SolarCity Corp (SCTY) Puts Pop Ahead of Tesla Merger Vote

SolarCity Corp (SCTY) is higher ahead of tonight's vote on the pending Tesla Motors Inc (TLSA) merger

Nov 17, 2016 at 2:36 PM
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SolarCity Corp (NASDAQ:SCTY) stock is on the rise this afternoon, as shareholders prepare to vote on the proposed tie-up with Tesla Motors Inc (NASDAQ:TSLA). According to Reuters, slowing solar roof growth means the vote could be coming at a good time for SCTY, which -- like TSLA -- is chaired by Elon Musk. At last check, the equity has added 2.2% at $20.25, but it's clear not everyone is banking on a move higher for the stock. The action is especially hot in SCTY's options pit, where both put and call options are changing hands at double the expected intraday rate.

Put volume is particularly substantial today, running in the 87th percentile of its annual range, with put open interest already seated in the high 94th annual percentile. Topping today's action is the weekly 11/25 19-strike put, where a block of 3,000 contracts was bought to open, according to Trade-Alert. Shelling out $0.80 per contract, this put buyer is putting nearly a quarter-million dollars on the line (premium paid * number of contracts * 100 shares per contract), betting on SCTY shares to slide below the $19 mark before the close next Friday -- echoing some similar action seen in TSLA's options pits this morning.

While it's possible this put buyer could be a shareholder hedging against a downside move in the aftermath of today's vote, there has been plenty of bearish action in SCTY's options arena lately, suggesting this may be just more of the same. Specifically, the stock's 50-day put/call volume ratio of 2.97 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits just 4 percentage points from an annual high.

Near-term options traders have been unusually put-heavy of late, also. SCTY sports a Schaeffer's put/call open interest ratio of 1.88 -- showing put open interest nearly doubling call open interest among options set to expire in three months or less. Plus, this ratio ranks higher than 83% of all readings taken in the past year.

Notably, it looks to be a prime time to pick up SCTY's short-term options right now. The stock's 30-day at-the-money implied volatility of 59.7% and its Schaeffer's Volatility Index (SVI) of 57% sit in the respective 17th and 12th percentiles of their 12-month ranges, indicating near-term options are pricing in low volatility expectations. Meanwhile, the equity's Schaeffer's Volatility Scorecard (SVS) of 98 suggests the options market has substantially underpriced SCTY's ability to make big moves on the charts over the past year.

Outside of the options pits, pessimism is also running high. More than one-third of SCTY's available float is currently wrapped up in short interest, accounting for over eight sessions' worth of buying power, at the stock's average daily volume. Plus, 10 out of 11 analysts maintain a "hold" or a "strong sell" opinion on the shares.

Given the security's technical performance this year, the abundance of bearish attention should be little surprise. SolarCity Corp (NASDAQ:SCTY) has shed 60% of its value in 2016, hitting a three-year low around $16 about two months ago. Since then, the shares have repeatedly run into trouble in the $20.50-$21.50 region, which roughly coincides with a 23.6% Fibonacci retracement of the stock's April highs and September lows.

SCTY Daily Chart Nov 17 2

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