Options Traders Swarm Red-Hot Plug Power Stock

Plug Power options are trading at four times the expected intraday rate

Apr 11, 2017 at 2:07 PM
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Plug Power Inc (NASDAQ:PLUG) continues to burn bright in the wake of its potential pact with Amazon. Today, PLUG stock is 5.7% higher at $2.59, and earlier touched an annual peak of $2.70. In fact, since last Tuesday's close -- just before the Amazon news broke -- the shares have roughly doubled in value. All the while, PLUG options traders have been aggressively placing bets on the shares. 

Currently, call, put, and total open interest on the stock rank at the top of their respective annual ranges. In the past five sessions, the May 4 strike has been especially popular, with the call and put both adding approximately 9,500 contracts. Activity really picked up last Friday on PLUG, when nearly 6,000 contracts were added at each strike -- and were likely tied to stock, per Trade-Alert.

Options trading is booming today, too, with calls crossing at quadruple the anticipated intraday rate. In fact, PLUG call volume currently registers in the 99th percentile of its annual range. Digging deeper, options traders are eyeing the $3 level, with potential buy-to-open activity transpiring at the September 3 calls -- one of PLUG's most active options. If this is the case, the expectation is for the shares to topple the out-of-the-money (OOTM) strike by September options expiration, even though the stock hasn't hurdled $3 in over two years.

Amid this surge in options trading activity, Plug Power's 30-day at-the-money implied volatility has risen to 122.4% -- just 1 percentage point from a 12-month top. This suggests it's a relatively expensive time to purchase premium on front-month options.

Outside of the options pits, sentiment is sharply divided. In the stock's bullish camp are analysts, 71% of whom rate PLUG shares a "strong buy" -- with not a single "sell" rating detected. But short sellers have been crowding into the bearish camp. In fact, 21.3% of the equity's float is sold short, which would take two weeks to cover, at the stock's average daily trading volume. As such, it's possible some of the activity at the OOTM September 3 call is a result of short sellers hedging against any additional upside. 

As alluded to, shares of Plug Power Inc have been tearing it up in recent sessions, including today. And while options traders are seemingly counting on more upside, there are signs the rally could cool off in the not-too-distant future. Specifically, PLUG stock's 14-day Relative Strength Index (RSI) is knocking on the door of 80, while the shares are north of their upper Bollinger Band -- both hinting at "overbought" status.

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