The Zhitong Finance App learned that as the market predicts that the Democratic Party will win a major victory in the US midterm elections to be held on Tuesday, traders are investing capital into a group of stocks commonly classified by investors as beneficiary stocks in a left-wing administration environment, including clean energy stocks.
Although clean energy stocks have been selling for five months, causing the stock prices of most companies in the industry to record declines during the year, the options trading volume of clean energy stocks, especially solar energy companies, soared sharply on Tuesday.
Invesco Solar ETF (TAN) options trading volume soared to 40 times normal levels on Tuesday, according to Cboe LiveVol. The fund usually traded less than 500 options contracts per day in the past month, but as of Tuesday afternoon trading, the volume had exceeded 20,000, 99% of which were call options.
According to SpotGamma's data, the most popular trading strategy for Invesco Solar ETF is to buy a call option that expires in December and has an exercise price of $50. The option fee is 80 cents, betting that the ETF will rise 17%. For options with shorter maturities, call options with exercise prices of $46 and $47 are also popular.
In terms of individual stocks, SolarEdge Technologies (SEDG.US) stands out. Its options trading volume is expected to reach three times the average, with over 75% of transactions being call options. The most popular trading strategy is to buy a call option that expires on Friday and has an exercise price of $35. The stock rose more than 6% on Tuesday and will release pre-market earnings on Wednesday.
Charlie Moon, a trader at Chicago-based Prosper Trading Academy, said, “I'm only optimistic about solar stocks when the White House is governed by the Democratic Party. Enphase is really worth watching, though, as the company has seen some insiders buying shares.”
Bullish investors are indeed experimentally buying Enphase Energy (ENPH.US) options. The company's stock price fell 20% after announcing earnings last week, but since then it has completely recovered its losses and rose 9% on Tuesday. With options trading volume at twice the average level, traders may have bought 8,600 call options and less than 900 put options.
Enphase's most popular trading strategy is to buy a call option that expires in January and has an exercise price of $35. The transaction cost $2.45 per contract, which means Enphase's share price would need to rise 23% to reach the option's break-even point.