Friday, May 17, 2013

Solarcity (SCTY) - Stock Explodes, Vol Explodes -- One Makes Sense, the Other, Not So Much...

SCTY is trading $44.88, up 25.8% with IV30™ up 29.9%. The LIVEVOL® Pro Summary is below.


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SolarCity Corporation (SolarCity) is engaged in the design, installation and sale or lease of solar energy systems to residential and commercial customers, or sale of electricity generated by solar energy systems to customers.

This is a vol and price note on a stock that is exploding today. Let's start with the news:

Wall Street’s major banks continue investing in the clean energy sector, with The Goldman Sachs Group, Inc. (GS) the latest to jump on the bandwagon. Goldman entered into a deal to finance approximately 110 megawatts (MW) rooftop solar power generators of Calif.-based SolarCity Corporation (SCTY). The combined lease financing agreement for homeowners’ rooftops is worth $500 million, and is the biggest deal to be announced in the U.S.

The agreement began in 2012 and extended as per its initial terms, to April-end. The deal has already helped achieve 26 MW of solar generation. Further, it is expected to generate an additional 158 MW as of May 10, 2013.

Source: ZACKS via Yahoo! Finance: Goldman Invests in Solar

Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see that the price hit a low of $9.20 over the last year and as of this writing is trading nearly 500% of that level.  The news today is big -- perhaps the most telling part is this reprise: " The combined lease financing agreement for homeowners’ rooftops is worth $500 million, and is the biggest deal to be announced in the U.S."

But it's actually the vol that has my attention, so let's turn to an isolated IV30™ chart, below.

We can see how elevated the implied got into the last earnings cycle (the blue "E" icon), and then the obligatory vol crush.  The news today has pushed the vol right back to the peak ahead of earnings.  Here's the thing... The news is out... It seems to be unambiguous.  Goldie is a reputable name -- I don't think there is a doubt about the investment actually happening... Agree so far?

OK... Well, if you do... Then why is the vol exploding today?  Or said differently, why is the vol at an all-time high?  What is "unknown?"  Yes, this investment seems to be valuation changing (duh), and yes, it's a big deal... but that's not what vol measures, that's what the equity price measures.  I must say, this is a bit confounding to me.  Then I looked to the Skew tab, and got more confused...

So Jun is elevated to Jul, that makes sense.  But what is a little weird is.. the skew is normal.  Yeah, it's weird to me that a firm up 400% in a year and 25% in a day with vol at all-time highs on the largest investment of its type ever from Goldie has no upside skew at all.  No parabolic (two-tailed) risk reflected by the option market... Just normal, "hoe hum" skew.  What?...

Finally, let's turn to the Options Tab.

Across the top we can see that Jun vol is priced to 126.90% and Jul is priced to 114.54%.  Man that seems high... ya know, or not?...

FULL DISCLOSURE: I hold a small short vega position in SCTY in Jun.

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1 comment:

  1. It was nice coming across the post. Thanks for sharing such informative stuff.