New Trade Alert for (SPWR)
SunPower January $5.00 Call @$2.50 or less
Risk Rating: 2.75 (1 = lowest 5 = highest)
Above Break Even Probability: 41%
Maximum Loss Probability: 19%
A Crude comeback of 10% in a week has Oil on the move supporting beaten and battered Energy Stocks.
(A one day unwind, as it stands now for stocks, has been seen before as the long rally run needed a profit taking break. Every past selloff has bounced back to mark new ALL TIME HIGHS.)
Solar stocks have been slammed and even with a healthy recovery in 2017 still stand at large losses with big name First Solar down 30% in the last 52 weeks.
The sun has not set on alternative energy…
SunPower in comparison is off more than 55% in the last year of trade bottoming out in the single digits
SunPower has tracked from $6 to $9 since September recently touching the $7.50 midpoint resistance.
A rally above the $7.50 area sets up attack on the $9 channel top 30% higher then targets $12 which is 70%+ up above.
The SPWR March $5.84 bottom was a price not seen since 2012. Bullish divergence also had a new price low and NO new high in volatility to suggest the selling has tired.
Risk reward favors Bulls at these discounted levels.
Only a close below the $6 on a weekly basis would negate this bullish buying premise.
The Options Way: Unlimited Upside Potential with Limited Risk.
A SPWR long call option can provide the staying power for a market upturn. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months and strikes. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security.
It is important to buy options that payoff from only a modest price move. There is no need to ONLY make money on the all but infrequent large price explosion.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability.
That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With SPWR trading at $7.10, for example, an In The Money $5.00 strike option currently has $2.10 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the SPWR January $5 Call at $2.50 or less.
This option strike gives you the right to buy the shares at $5.00 per share, a price level last seen in 2012 more than four years ago, with absolutely limited risk.
The January option has six months for BULLISH development. An 85 Delta on this strike means the option will behave much like the stock.
The maximum loss is limited to the $250 or less paid per option contract.
The option upside is unlimited.
The SPWR option trade break even is $7.50 at expiration ($5.00 strike plus $2.50 or less option premium). That is less than 50 cents above the current price.
A minuscule modest move just to the $9 channel top is a 60% return in the option.
The measured move target at $12 would see option value at $7 for a 275% gain…