New Trade Alert for (SUNE)
Buy January SUNE $6.00 Call @$2.50 or less
Darkness Before Solar Dawn
The solar industry has suffered with the decline in energy prices. The latest Oil decline has pressured the solar sector giving up big gains to just under unchanged in 2015.
TAN, the Solar Exchange Traded Fund however has started to strengthen recovering from the 30% loss in the last two months.
SunEdison has lagged Solar down 60% in 2015 with extreme lows at $6.50 September 29th. A quick run to $10 in week plus has seen sellers knock the stock down once again.
The first target in SunEdison sits at the $10 October top 30% higher than the current price.
A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid. An option instead of buying the shares also has greater staying power for long term trend development.
The January option has three months for Bullish development.
An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the stock itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A SunEdison long call option can provide the staying power in a potential bullish trend extension. 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. 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.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from only modest directional moves.
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 SUNE at $7.75, for example, an In The Money $6 strike option currently has $1.75 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 — at least three to six months for the trade to develop. 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 SUNE January $6 Call at $2.50 or less. A close in the stock below $6 on a weekly basis or the loss of half of the option premium would trigger an exit.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position. The option also behaves much like the underlying stock with a much less money tied up in the investment.
The July option has three months for bullish development. The $6 strike is below the annual lows at $6.50.
This option now has a 79% Delta meaning it will move very much like the stock.
The maximum loss is limited to the $250 or less paid per option contract. The upside, on the other hand, is unlimited.
The SUNE option trade break even is $8.50 or less at expiration ($6 strike plus $2.50 or less option premium).
If shares reach the modest $10 target at the October peak, the option would be worth $4.00 for near a 50%+ return on investment.