Call Options Or Put Options On SolarCity (SCTY)?

| May 22, 2013 | 0 Comments

solarSolarCity (SCTY) provides solar energy systems to residential and commercial customers in the US.  Like Tesla (TSLA), SCTY is an Elon Musk company.  That means it will generate plenty of buzz and excitement.

SCTY is currently trading for $44.52.  The stock was down 14% yesterday but is up a whopping 273% year-to-date.  The shares are up an amazing 384% off the 52-week low of $9.20 and are down 16% from the 52-week high of $52.77.

Is this an opportunity to buy call options on SCTY after the company agreed to a huge financing deal with Goldman Sachs (GS)?  Or should you buy put options on SCTY because the company’s first quarter loss was larger than expected?

The bulls make a convincing argument…

SolarCity’s business model is based on its customers being able to pay a monthly fee for their solar energy panels instead of having to pay a lump sum upfront.  It’s the only way most homeowners and small businesses can afford to go solar.

However, this type of financing requires funding from outside sources.  That’s why SCTY’s recent deal with Goldman Sachs is such a big deal.  GS agreed to fund $500 million in solar power projects.

With this sort of backing, SCTY can be aggressively focused on marketing their products and services… and eventually turning a profit.  So far, investors seem to be all over the stock based on its potential.

But the bears have a compelling case as well… 

SCTY is still operating at a significant loss.  In fact, the company just posted a larger than expected quarterly loss – $31 million or $0.41 per share. 

Basically, the company is investing a substantial amount in its rooftop systems. However, the demand for their product has to keep growing in order for any investments to pay off.

And, there’s no guarantee solar power is going to catch on mainstream.  There are still a lot of doubters out there.  And not to mention, not everyone wants to commit to decades-long contracts or permanent solar panels on the roof.

Is SCTY’s huge deal with Goldman enough to counter the negative quarterly numbers?

If you think the bulls are right, take a look at buying the SCTY July $55.00 calls for around $3.00

If you think the bears are right, take a look at buying the SCTY July $35.00 puts for around $3.50.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.