Plug Power Inc. (NASDAQ:PLUG) will be facing quite a mixed sentiment backdrop when the company steps up to release its fourth-quarter earnings report ahead of the open on Tuesday. Wall Street is currently expecting solid growth, if not profitably, from Plug Power.
The consensus currently stands at a loss of 4 cents per share, up sharply from a loss of 8 cents per share last year. Revenue expected to rise to $26.3 million year-over-year from $8 million.
That said, there are whispers on Wall Street that Plug may not be able to live up to current projections. According to EarningsWhipser.com, Plug Power’s fourth-quarter whisper number comes in at a loss of 5 cents per share. Additionally, the brokerage community has its doubts regarding Plug’s long-term outlook, with Thomson/First Call date revealing that two-thirds of analysts following PLUG stock rating it a “hold” or worse.
PLUG stock has also become an easy target for short sellers. According to data from the most recent reporting period, some 31.5 million shares of PLUG stock are currently sold short. This wealth of short positions accounts for nearly 19% of PLUG’s total float, or shares available for public trading. While chances are slim, these shorted shares could fuel a potential covering rally if Plug Power can offer up a positive quarterly report next week.
Activity in the options pits suggests that short sellers may be hedging against just such a short-term rally from PLUG stock. Currently, the March/April put/call open interest ratio for PLUG rests at 0.33, with calls tripling puts among near-term options. This ratio dips to 0.30 when we zero in on just the March series of options, which expire at the end of next week and would be most influenced by Tuesday’s quarterly report.
Click to Enlarge Overall, March option implieds are pricing in a potential post-earnings move of about 13% for PLUG stock. As a result, the upper bound lies at $3.39, home to the stock’s February highs, while the lower bound rests at $2.61, just below PLUG’s early February lows.
2 Trades for PLUG Stock
Call Buy: Those traders looking to bet against analysts and side with the bulls in the options pits earnings might want to consider buying a Mar $3 call.
At the close of trading on Wednesday, this option was offered at 9 cents, or $9 per contract. Breakeven lies at $3.09, while a double on the position is possible if PLUG trades at or above $3.27 before March options expire.
Straddle: Alternately, traders with a higher risk tolerance might want to take advantage of this high volatility situation and enter a straddle. A straddle involves the simultaneous purchase of an at-the-money call and an at-the-money put in an attempt to take advantage of a greater than expected move from the underlying stock.
By employing a straddle on PLUG stock, you are likely betting that the company is going to blow out earnings and offer strong guidance, or confirm the Street’s bearish bias, resulting in a flood of sell-on-the-news activity.
As the close of trading last night, the PLUG Mar $3 straddle was offered at 39 cents, or $39 per pair of contracts. Breakeven for this trade lies at $3.39 on the upside and at $2.61 on the downside.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
