SunPower Call Options Hot Again After SolarWorld Deal

We could see the solar stock benefit from a short-squeeze or bull notes

Apr 18, 2018 at 3:07 PM
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Shares of SunPower Corporation (NASDAQ:SPWR) are soaring today, up 10.2% at $9.20, thanks to news the alternative energy company is buying the U.S. business of Germany-based SolarWorld AG -- a move likely sparked by President Trump's tariffs on solar panels. The jump in share price -- which may also be fueled by a First Solar bull note -- puts SPWR shares past recent congestion below the 200-day moving average and into the $9 and $10 area that has killed the last two breakout attempts. All the same, the security is pacing for its second highest settlement in 2018, and options traders have been betting on a move into double-digit territory.

sunpower stock price

By the numbers, calls and puts are both trading well past their average daily volumes today, but call volume is more than double put volume. In fact, call volume is threatening the January 23 52-week high of 15,434 contracts. The most popular option is the June 10 call, where buy-to-open activity could be taking place, while new positions are also being opened at the April 9.50 call.

Heavy call buying is nothing new for SunPower, according to its 10-day call/put volume ratio of 7.06 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), a reading that ranks in the top quartile of its annual range. During these past two weeks, the May 10 call has seen the largest increase in open interest.

For sure, some of this call buying could be from short sellers using options to hedge against an unfavorable move to the upside -- like we're seeing today. That's because more than one-fourth of SPWR's float is sold short, and going by average daily volumes it'd take more than six days for these bears to cover their positions. From a contrarian standpoint, this large amount of buying power on the sideline could be viewed as a bullish indicator.

Plus, analysts are extremely bearish, with 70% of those covering the security giving it a "hold" or "strong sell" rating. Maybe more revealing is the average 12-month price target of just $7.78. Either way, a round of bullish brokerage attention is something else to watch out for with SPWR.

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