Solar helps heat up market

  • Solar stocks tumbled in 2021 after a strong 2020
  • Sunrun (RUN) fell to an 18-month low last week
  • Shares up 6%-plus intraday Tuesday on heavy call volume

When the market had some trouble yesterday morning rebounding from Monday’s sell-off, one area that led early on was clean energy. Many solar stocks, which began and ended last year with heavy selling—and fell to multi-month lows this month—were solidly higher well before the major stock gauges turned to the upside.

Although it’s difficult to tell from the following chart, Sunrun (RUN) was up more than 4% much of Tuesday morning:

Chart 1: Sunrun (RUN), 3/18/20–1/11/22. Sunrun (RUN) price chart. Solar ups and downs.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Yesterday’s bounce came just three days after RUN hit an 18-month low of $29.22, extending its retreat from January 2021’s record high to 69%, and erasing roughly three-quarters of the 1,044% rally that preceded it.

Overall, tech and growth names—which have borne the brunt of the recent sell-off—rebounded more than the broad market yesterday, but few areas of the market were as robust as clean energy, and RUN was among the leaders in the space. It’s bullishness appeared to be evident on the options tape, with call volume outpacing put volume by around 20 to 1:

Chart 2: LiveAction scan: Highest call-put ratios, 1/11/22. Unusual options activity. Calls 20 times more active than puts.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The options chain shows most of the trading was in three out-of-the-money (above the current stock price) calls—the February $35, $40, and $45 calls. That means buyers will, at expiration, be holding worthless options unless RUN rallies around 5%, 20%, or 35%, respectively, above yesterday’s stock price by February 18. By far the most volume occurred in the $40 calls:

Chart 3: RUN February call options, 1/11/22. Sunrun (RUN) options chain. Heavy volume in above-the-market calls

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

With 5,800 contracts trading hands and open interest (OI) at 3,700, that means at least some of the volume in these options consisted of traders getting into new positions instead of getting out of existing ones. For example, if yesterday’s volume had been exactly 3,700, it’s possible that someone was liquidating an existing 3,700-contract position. (OI data is always delayed, since it represents the number of open positions at the close of the previous day.) In this case, even if a trader did liquidate 3,700 of the $40 calls yesterday, there was still an additional 2,100 contracts worth of new positions.

That’s a long way from saying the downturn in tech and growth stocks has run its course. Many investors and traders likely spent much of 2021 waiting for solar stocks to mount another sustained uptrend. Despite managing a few multi-week upswings, though, the sector failed to gain traction.

But identifying long-term lows in any market is a much different issue than appreciating the shorter-term momentum shifts that can occur even when a market is mostly moving sideways to lower.

Today’s numbers include (all times ET): Consumer Price Index, CPI (8:30 a.m.), EIA Petroleum Status Report (10:30 a.m.), Beige Book (2 p.m.).

Today’s earnings include: Infosys (INFY), KB Home (KBH).


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