Some 100 gigawatts of solar power projects were completed last year, and after some virus-related issues, there’s every reason to expect even faster deployment of solar in the future. That should help today’s recommendation, a provider of residential solar electricity via solar panels and battery storage
Cabot Profit Booster 132
Despite growth stocks taking a big tumble yesterday our portfolio continues to exceed even my wildest of expectations. And with our FND, IPHI, HZNP, PAAS, MRVL, PTON and BIG July covered calls likely on their way to full profits on expiration it would be great to close all of these trades Friday for big wins, and reduce our portfolio exposure just in case Monday’s sell off was the start of a more meaningful decline.
Of note, with seven positions expiring this Friday expect to hear from me Thursday or Friday morning with specific instructions if any of those positions need attention.
In an attempt to keep the portfolio as diversified as possible, here is this week’s idea, though of note, there is risk as the stock has been on a big run.
The Stock – Sunrun (RUN)
Some 100 gigawatts of solar power projects were completed last year, and after some virus-related issues, there’s every reason to expect even faster deployment of solar in the future. That should help Sunrun, a provider of residential solar electricity via solar panels and battery storage.
Wall Street jumped on board last week after the company released some major news: Sunrun announced that it was paying $3.2 billion to take over Vivint Solar, the #2 company in U.S. solar market, which will increase Sunrun’s customer base to 495,000.
In the solar world, residential power is mostly sold door-to-door, but Vivant mitigated the COVID affect by reformatting its sales process with telesales, which cut its cost of acquiring customers and reduced the price of the average system to 22% of its former $18,000 price, to around $4,000. Those efforts resulted in a sales decline of just 30% in May, much better than the 60% decline that occurred in early COVID days.
That strategy fits in well with Sunrun, which had to take its salespeople out of Costco and Home Depot during the shutdown, where those sales accounted for about a third of its revenues. But the bigger focus is not on the here and now but on what this combination will achieve; the merger will transform Sunrun’s business almost completely to a self-installation focus, which keeps costs down, and it should result in $90 million of annual synergies, much of which could be passed on to customers, further bolstering demand. Wall Street clearly likes the idea.
Technical Analysis
RUN hit 21 last July, inched out above that level in February (near 24) and then knifed as low as 8 in March. The recovery since then has been strong and persistent, but the acquisition changed everything—RUN has exploded to new highs on record volume and has continued higher without taking a breath. Stop - 23.5
The Covered Call Trade
Buy Sunrun (RUN) Stock at 30.25, Sell to Open August 30 Strike Calls (exp.8/21/2020) for $2.50, or a Net Price of 27.75 or less
Static Return: $250 per covered call (9%)
Breakeven: 27.75
Covered Call Return (if assigned): $250 per covered call (9%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 27.75 or less. (In this case 30.25 minus 2.50 = 27.75. Or another example is you could pay 30.5 for the stock and sell the call for 2.75, which also equals 27.75)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
