Income Trade Covered Calls and Renewable Energy Stocks

SolarEdge Technologies, Inc. (SEDG) broke out Thursday, shooting above the upper Bollinger Bands in spectacular fashion. Renewable energy stocks are bullish, creating potential income trades, where we intend to capitalize on the expanding implied volatility by selling covered calls.

We anticipate the stock could move a bit higher, as the company beat earnings expectations by (72.41%) on earnings of $0.50 per share on revenue of $136.1 million. The consensus earnings estimate was $0.29 per share on revenue of $125.7 million. Revenue grew 9.1% on a year-over-year basis. Additionally, the company said it expects third quarter revenue of $155.0 million to $165.0 million. The current consensus revenue estimate is $133.9 million for the quarter ending September 30, 2017.

Using the $165.00 million figure, the company is projected to exceed earnings projections by 23.23%. Furthermore, shorts have a 14.82% stake, so this could take a few days to trim back.

The Trade – SolarEdge Technologies Inc. – SEDG – Close 28.35

SEDG 15-SEP 25.0C last price 3.77 (40 days until expiry) – calculations below.

To enter this trade, we will buy 500 shares of SEDG stock at $28.35 or better and sell 5 option contracts of the 2017 15-SEP 25.0 call for $3.77 or better. This trade will expire in 40 days and return 1.6% or 14.20% annualized if the stock is assigned at expiration.

• Premium received = $1,889.00 (5) calls
• Cost basis $12305.90
• Break Even = $24.61

Implied Volatility	44.5614
Gamma	0.0617
Vega	0.0242
Delta	0.8248
Theta	-0.0140

We will consider an initial entry, using the Trade of the Day (ToD) Setup. We would like to be in the stock at 28.35 or better, then have the stock climb higher before we sell the covered calls. The idea is for the stock to prove itself first, then move away from our entry so we can see some appreciation in the shares and collect covered call premium. Additionally, if the stock does climb, we may have an opportunity to sell a higher strike (26,27,28 etc).

Solar and Renewable Energy

TAN shows a bullish trend underway, helping to support a potential trade on SEDG. Several stocks in this group, including CSIQ, FSLR, and JKS look bullish as well.  JKS is about to breakout of a consolidation pattern. FSLR is stepping higher along its rising 9ema..

 

Happy Monday,

Vinny

More: S&P500 It’s All About Earnings Growth and Dividends

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