Monday, May 20, 2013

SunPower (SPWR) - Vol Diff Opens; Upside Skew Diverges in Front as Stock Moves 500+%

SPWR is trading $22.01, up 4.5% with IV30™ up 12.9%. The LIVEVOL® Pro Summary is below.


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SunPower Corporation is a vertically integrated solar products and services company that designs, manufactures and delivers solar electric systems worldwide for residential, commercial and utility-scale power plant customers.

I found this stock using a real-time custom scan I built that hunts for calendar spreads between the front two monthly expiries. Combine this skew with an enormous stock appreciation of late and we have a very interesting story.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

Let’s start with the Skew Tab to examine the month-to-month and line-by-line vols.

There are two phenomena that caught my eye here.

(1) Obviously, Jun vol is well elevated to Jul (the red curve is above the yellow curve)
(2) May vol shows an upside skew reflecting greater risk (potential) to the upside than to the downside. This is not normal skew, though for firms in the solar industry, it’s not “unusual.” The point is, the vol diff grows substantially large between the two months as we move to OTM calls.

The one-year SPWR Charts Tab is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Just look at that stock chart, it’s incredible. At point during the last year, this was a $3.71 stock and it’s now trading nearly 6-fold that price. The upside skew in May reflects this upside risk (potential). The overall vol pop today has put the IV30™ for SPWR in the 75th percentile on an annual basis, but if we look at the bottom chart (the vol char) we can see that in fact the red curve (IV30™) is right about in line with the two historical realized vol measures. In English, the implied, though I’s popping today, feels about “fair.”

Finally, let's look to the Options Tab (below).

Across the top we can see that May is priced to 89.66% while Jun is priced to 80.49%. But this isn’t a story about a 9 point vol diff from month-to-month. Check out that upside, for example the May/Jun 29 call spread. That shows ~17% vol diff. The option market reflects near-term upside risk in SPWR and from the stock chart, I can see why.

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