Where tech and energy intersect

A stock entering correction territory and testing support on heavy put options volume doesn’t sound like a particularly bullish scenario, but as is usually the case in the markets, the fine print often clashes with the headline.

On Thursday, Solaris Energy Infrastructure (SEI) was up on the day but still near its 10-week lows, having retreated as much as 26.4% from its December 5 record close of $55.24:

Although SEI is in the natural gas and oil business, it’s recent downturn was arguably tied, at least in part, to the tech pullback that has contributed to volatility in the broader market in recent weeks. One of SEI’s primary businesses is producing natural-gas turbines to power AI datacenters. As sentiment around the “AI trade” has ebbed and flowed in recent weeks, so have the fortunes of many stocks outside the tech sector that supply the nuts-and-bolts AI infrastructure.

Meanwhile, SEI’s put volume was nearly 40 times average in early trading on Thursday—the second-highest level of any individual stock trading above $10:

Here’s where things get more interesting. The options chain showed large trades occurred in the December $40 and $50 puts (expiring today), as well as the January $40 puts (below). But the volume in both December contracts was less than their respective open interest (OI) totals, which means these could be liquidations of existing positions rather than new positions—something that may be even more likely given the options were expiring in roughly 24 hours.

In contrast, volume in the January put was well above OI, which suggests it’s a new position. If that’s the case, it’s also possible that it represented a “rollover”—that is, a liquidation of all or part of the December positions and re-establishment in the January expiration. But the two could be entirely unrelated.

Jumping back momentarily to the price chart provides additional conext, since SEI was actually trading sharply higher yesterday (more than 8% intraday), one day after it closed at its lowest level since September 30 and tested the implied support level at its November lows.

In light of all these circumstantial factors, the initial impression of potentially bearish options activity in a downtrending stock seems much less cut and dried. What’s also up for debate is whether SEI will continue to track the swings in the AI trade more than it does the swings in the energy markets. The answer to that question may determine whether the stock’s support level holds in the near future.

Note: MorganStanley & Co. Research currently has an Overweight rating on SEI. Click here to see detailed research.

Today’s numbers include (all times ET): quarterly (“Quadruple Witching”) expiration, Personal Income and Spending (10 a.m.), PCE price Index (10 a.m.), Existing Home Sales (10 a.m.), Consumer Sentiment (10 a.m.).

Today’s earnings include: Conagra Brands (CAG), Lamb Weston (LW), Winnebago (WGO).

Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.