Tuesday, March 15, 2011

SunPower (SPWRA) - Elevated Front Skew on Stock Pop

SPWRA is trading $16.06, up 10.8% with IV30™ down 1.2%. The LIVEVOL® Pro Summary is below.


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SunPower Corporation (SunPower) is a vertically integrated solar products and services company that designs, manufactures and markets high-performance solar electric power technologies.

Alternative energy is up today on the nuclear plant scare in Japan, though as Cathy Clay of Livevol Strategy Group reminded me... Didn't the 40 year old nuclear reactors hold up pretty well given the circumstances?

The company has traded nearly 30,000 contracts on total daily average option volume of just 8,879. Calls have traded over 23,000x for a 3.3:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. Sort of rapid fire in the front two month calls. Interestingly, the Mar vol is up a lot (more than 10 points) but Apr vol is down 0.7 points. Hmm...

The Skew Tab snap (below) illustrates the vols by strike by month.

So a couple things here really jump out at me:

1. The month-to-month vol diff that has opened up.
2. The huge upside skew in Mar (red line). For example, the Mar 17 calls are priced at ~73 vol while the Apr 17 calls are priced at ~ 53 vol.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

The IV30™ is elevated relative to both the short-term realized (HV20) and the long-term realized (HV180). But then again, vol is up across the board.

Possible Trades to Analyze
1. If you're a bull on the solar companies (or SPWRA, specifically), try a call spread in Mar:
Buy the Mar 16/17 call spread for $0.36. That trade sells slightly higher vol than it purchases, and creates a 1.78:1 MaxGain:MaxLoss ratio with $0.06 of parity as of right now.

2. Bullish, but also feel front vol is too high:
2a. Buy the Mar/Apr 16 call spread for $0.62 and scalp ~16 vol points.
2b. Buy the Mar/Apr 17 call spread for $0.51 and scalp ~20 vol points.

3. Delta neutral but want to calendar spread the elevated front:
Sell the Mar 16 straddle @ $0.82 ~ 71 vol.
Buy the Apr 16 straddle for $2.05 ~57 vol.

4. SPWRA has moved $1.56 today and the ATM straddle in Mar (three days to go) costs ~$0.88. It's at least worth analyzing a purchase of that straddle.

This is trade analysis, not a recommendation.

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