Unlock: SolarCity (SCTY) Trade Idea

(This SCTY Trade Idea was issued on July 22 for $2.25. The October 50 Puts were closed today for $4.50 or 100% gain)

SolarCity
Ticker: SCTY
Sector: Solar
Current Price: $55.40
Target: $40.00
Stop Loss: $63.00
Time Duration: 86 Days

Trade Idea: Buy SCTY October 50 Puts for $2.25 or less.

In this particular case we are simply following the logic that as conventional energy rolls over, mainly oil, natural gas and coal, the pressure will rise on solar stocks. This is already evident with sharp heavy sell-offs in FSLR and SPWR recently. We believe SCTY will be next. The recently announced ITC ruling is negative for the sector. Additionally, the biggest takeaway from a late June Analyst Meeting was higher risk for lower pricing coming from loan based offerings which previously had been a growth engine for SCTY.

Bottom line, we believe mechanics of solar sectors are changing and forward earnings estimates are at risk of being cut. Today, buyers of 1,600 August 55 puts paid up to $2.70 and buyers of 750 October 50 puts paid up to $2.15. Technically, we believe the stock is at risk of losing $50 support and we want to be positioned for that.