Call Options Or Put Options On Plug Power (PLUG)?

| July 23, 2014 | 0 Comments

Plug PowerFuel cell developer Plug Power (PLUG) has been an investor favorite this year. The stock is up an eye-popping 1,267% from this time last year!

PLUG shares are currently trading at $5.48. The stock is trading 53% below the 52-week high of $11.72 and is 1,421% above the 52-week low of $0.36.

Is this an opportunity to buy call options on PLUG after positive analyst comments on the company? Or should you buy put options on PLUG because of the company’s high valuation?

The bulls make a convincing argument…

It’s been a good year for fuel cell companies as the technology gets closer to becoming adopted on a mainstream basis. Fuel-cell powered vehicles could make a nice addition to the already successful hybrid and electric car alternatives.

Just last week, a Roth Capital analyst said PLUG could meet its 2014 revenue guidance and booking target. Plus, the company may ship more units than expected and increase gross margins.

Moreover, FBR Capital Markets set an $8 price target for the company. FBR predicts PLUG could surpass $200 million in revenues by 2017.

But the bears have a compelling case as well…

Despite positive news on PLUG, the company looks highly overvalued at this point. Investors seem to have jumped the gun due to optimism.

After all, the company isn’t profitable. And, the most recent full-year revenue for the company was just around $25 million. In other words, PLUG still has a long way to go.

Meanwhile, investors have bid up the share price to 322x projected earnings. The stock is also trading at 36x sales and 16x book value. That’s expensive no matter how you look at it.

So is it time to be bullish on PLUG due to positive coverage, or should you take a bearish position because the stock is overheated?

If you think the bulls are right, take a look at buying the PLUG September 5 calls for around $1.00.

If you think the bears are right, take a look at buying the PLUG September 5.50 puts for around $1.00.

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.