According to a report, as prediction markets bet that Democrats will secure a major victory in Tuesday's U.S. midterm elections, traders are directing funds into a group of stocks typically classified by investors as beneficiaries of a left-leaning governing environment, including clean energy shares.
Even though clean energy stocks have endured a five-month sell-off that has pushed share prices across most companies in the sector into negative territory for the year, options trading volume for clean energy shares, particularly solar companies, still surged dramatically on Tuesday.
According to Cboe LiveVol data, options trading volume for the Invesco Solar ETF (TAN) skyrocketed to 40 times its normal level on Tuesday. The fund typically sees fewer than 500 options contracts trade per day over the past month, but by midday Tuesday, volume had exceeded 20,000 contracts, with 99% of them being call options.
According to SpotGamma data, the most popular trading strategy for the Invesco Solar ETF was buying December-expiry call options with a $50 strike price at a premium of 80 cents, betting on a 17% gain for the ETF. For shorter-dated options, $46 and $47 strike call options were also quite popular.
On an individual stock basis, SolarEdge Technologies (SEDG.US) stood out in particular, with its options trading volume expected to reach three times the average level, of which more than 75% were call options. The most popular strategy was buying Friday-expiry call options with a $35 strike price. The stock rose more than 6% on Tuesday and is scheduled to report earnings before the market opens on Wednesday.
"I would only be bullish on solar stocks if the White House is controlled by Democrats," said Charlie Moon, a trader at Chicago-based Prosper Trading Academy. "However, Enphase is indeed worth watching, as the company has seen some insider buying of its shares."
Bullish investors are indeed tentatively buying options in Enphase Energy (ENPH.US). The company's stock fell 20% after reporting earnings last week but has since fully recovered those losses and rose 9% on Tuesday. With options volume reaching twice the average level, traders may have bought 8,600 call options while put option volume was less than 900 contracts. The most popular strategy for Enphase was buying January-expiry call options with a $35 strike price. The trade costs $2.45 per contract, meaning Enphase shares would need to rise 23% for the option to reach its breakeven point.
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