Trade Summary: May 26, 2015

| May 26, 2015

May 26, 2015

 

 Trade Rationale

With the markets closed yesterday for Memorial Day, we pushed the latest trade summary to today.  The thing about Memorial Day, it often reminds us that the summer season has truly arrived.  Personally, I associate summer with hot, sunny days.  And, I associate sunny days with solar and renewable energy.

I’m a big fan of renewable energy and believe there’s a ton of opportunity in solar, wind, and other types of green energy production.  Even though solar and wind energy have gained tremendously in popularity, there’s still plenty of room for growth.

The key is to find the best way to play renewable energy growth.  Like any other industry, some companies are better bets than others.  And in some cases, you have to find more creative ways to trade the industry.

As such, we’re going to buy calls in one solar company and puts in another.  Plus, we’re going to grab calls on a power company reliant on wind power.

First off, let’s buy calls on First Solar (FSLR).  What I like about FSLR is it isn’t reliant on the rooftop solar market.  The company focuses mostly on commercial energy projects.  I believe that is the most sustainable (and expandable) type of solar business.

On the other hand, we’re going to buy puts on SolarCity (SCTY).  It’s hard to be too bearish on anything created by Elon Musk.  However, I think the rooftop solar market has expanded at too rapid a rate, and is likely going to come back down to earth.  Moreover, solar panel leasing, which SCTY focuses on, is really not a good deal for most people and is going to need some major changes moving forward.

Finally, we’re going to take a bullish position in wind power using Pattern Energy Group (PEGI).  Unlike the solar industry, it’s not nearly as straightforward finding individual wind power companies to invest in.  As such, we’re using a power company for our trade.  PEGI owns interests in 12 wind power projects, which are the primary sources for the electricity it sells to local utilities.

 

Trade Details

#1) Buy First Solar (FSLR) August 21st 55 Calls up to $2.75

For this trade, we’re looking for an up move in FSLR.  Our first profit point for conservative traders is at $57.50.  For aggressive traders, you can hold up to $60.  For risk control, the conservative exit level is $45.  $40 is the final exit level for aggressive traders.

First Solar

#2) Buy SolarCity (SCTY) July 17th 57.50 Puts up to $2.25

With this trade, we’re looking for a downward move.  Our first exit point for conservative traders is at $55.  For aggressive traders, you can hold to $50.  For risk control, the conservative exit level is $67.  And, $70 is the final exit level for aggressive traders.

SolarCity

#3) Buy Pattern Energy Group (PEGI) September 18th 30 Calls up to $1.70

Finally, we’re looking for a bullish move in PEGI.  Our first profit-taking exit point for conservative traders is at $31.  For aggressive traders, you can hold to $33.  For risk control, the conservative exit level is $26.  $24 is the final exit point for aggressive traders.

Pattern Energy Group

 

Category: AOA Trade Summary