SolarCity: Great Trading Opportunities AheadSCTY) several times over the last few months. Although my long-term stance on SolarCity is bearish, I have recommended buying the stock or call options several times in the recent past with most of my trades yielding double or triple digit returns.
My last article on SolarCity advised investors to sell the stock when it was trading at $27, which was about the same price Tesla Motors Inc (TSLA) offered to buy the company out.
Since then, SolarCity has tested its 52-week low levels, only to start rising again in the last couple of days. With SolarCity now trading at under $20, I think it makes for a good speculative long trade in the short-term.
Given that Tesla plans to acquire SolarCity for roughly $26, the market clearly doesn’t expect the deal to go through. That being said, I think SolarCity will probably file for Chapter 11 bankruptcy somewhere down the line, and it is necessary for Elon Musk to make the deal go through to save his reputation.
Thus, although the buyout is unlikely, I can see Musk pushing for it and getting it done.
Hence, SolarCity is currently almost 30% under its likely buyout price, which makes it a good speculative play. Investors who want to benefit from this spread can consider buying SolarCity for the short-term, or can also buy call options on the stock.
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ConclusionMost of my SolarCity trade recommendations have been very profitable over the last few months. While I still think the company has no long-term future on its own and have a $5 price target on the stock, I expect Elon Musk to bail SolarCity out to save his reputation. A SolarCity bankruptcy can also affect Tesla shareholders due to the Musk link, which is why I think he will push hard to get the deal done.
Since there’s almost a 30% spread between the reported buyout price and SolarCity’s current market price, I think it makes for a good short term trade. I think traders should consider buying SolarCity or going long via call options for the short-term. Leading up to SolarCity’s earnings, I can see the stock trading at $26, thereby making it a good short-term speculative buy.
Published on Sep 30, 2016By Ayush Singh