Plug Power Inc: Options Data Suggest Short-term Hedging

Plug Power Inc: Options Data Suggest Short-term Hedging

Plug Power is scheduled to release its fiscal fourth-quarter results on Tuesday, March 17. Analysts expect strong growth in revenue, though the company is expected to remain in the red. According to Thomson Reuters, Wall Street projects 4 cents in quarterly losses, compared to a loss of 8 cents in the same period a year ago. Plug Power’s fourth-quarter revenue is expected to jump 227.40% YoY from $8 million to $26.3 million.

Short-sellers hedging against any short-term rally

Citing, Joseph Hargett of InvestorPlace says that the Latham, New York-based company may not live up to the Wall Street projections. He says Plug Power’s Q4 loss is more likely to come in at 5 cents, missing the consensus estimate by one cent. Further, analysts are also concerned about the company’s long-term prospects, especially after Plug Power dramatically reduced its FY2015 revenue estimates from $130 million to a little over $100 million.

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According to Nasdaq, more than 31.5 million shares, or 19% of the float, are held short. A positive quarterly report next week may trigger a massive short squeeze, sending the stock up. Activity in the options market suggests that short sellers are hedging against any short-term rally, reports Hargett. Currently, March and April put/call interest ratio for Plug Power stands at 0.33. The ratio declines to 0.30 if you look at only March series of options.

Two ways to benefit from Plug Power stock

Since March options expire at the end of the next week, they will be influenced by Plug Power’s fourth-quarter results. Joseph Hargett suggests two trades for Plug Power stock ahead of earnings. If you side with the bulls in the options market, you may want to buy a Mar $3 call. This option is currently offered at about $9 per contract.

Another option Hargett suggests is straddle, but it’s mainly for traders with a high risk tolerance. A straddle involves buying a call and a put option simultaneously to take advantage of the high volatility situation. Using straddle on Plug Power would mean betting that the fuel cell company is going to report solid Q4 results and offer strong guidance.

Plug Power shares fell 1.08% to $2.75 at 12:43 PM EDT on Friday.

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