No Sun Shining on SolarCity Corporation (SCTY) Earnings

SolarCity Corporation (SCTY) is a designer, fabricator and seller of solar energy systems for both residential and commercial building use. At the time of this post (11:15AM CST), SCTY is currently trading at 58.16, up 0.07% on the day. The stock is currently trading well within the lower portion of its 52 week trading range of 45.79-88.35 and has been unable to break above and trade over the 60.00 level resistance since early October 2014. SCTY is scheduled to report earnings today, 2/1/8/2015 after the market close.

Over the last eight quarters of earnings data available, SCTY has traded predominantly bearishly, moving lower on six out of eight sessions immediately following the EPS release. The average historical move during this same time period was approximately 9.2%, although it may be worth noting that four of the stock’s post-EPS directional moves registered over 10%. Currently the options market is pricing in a slightly lower than average move of 7.5% based on the current pricing of the at-the-money straddle. This would imply a directional move of about $4.40 in the price of the underlying stock by this Friday’s monthly options expiration. SCTY remains above the cloud and most relevant moving averages on the daily chart, but the Ichimoku Cloud is firmly downward sloping, and as previously stated the overall investor sentiment over the majority of the past year has been largely bearish. In conjunction with the propensity of SCTY to trade lower after earnings, I will be looking to establish a short position in this name going into this afternoon’s close.

Potential Trade: Buying the SCTY Feb 56-55 Put Spreads for $0.30
Risk: $30 per 1 lot
Reward: $70 per 1 lot
Breakeven: $55.70