Calling a Bottom in SunPower Corp. (SPWRA)

SunPower Corp. (SPWRA) received several downgrades during the last couple days and the stock is currently down more than 18%, but at least one investor is taking the sell off as an opportunity to sell some puts and calling for limited downside throughout the next half-year period.

Amid downgrades by FBR Capital Markets, Caris & Company, Raymond James and Piper Jaffray, Soleil went against the wind, upgrading SPWRA on Tuesday following the company’s announcement of unsubstantiated accounting entries.

More than 7,800 of the June 20 puts have changed hands so far today versus current open interest of just 83 contracts. This indicates that investors traded these puts to open. We saw one block of the June 20 puts trade 7,500 times for around $3.25 per contract with the stock trading at $21.80. This trade suggests an investor is betting that SPWRA shares could hold above the $16.75 level at June expiration.

This represents about a 24% drop from the stock’s current level. For this reason, put sellers are moderately bullish instead of absolutely bulled up, because the put seller does not need the stock to rally, just stay above $20 to earn the maximum profit.

After hitting an intraday low of $21.67, SPWRA shares are currently trading down $4.98 to $22.25. It is quite typical that when a company announces accounting irregularities, implied volatilities will rise as the stock tanks. That is the case here today as the implied volatility of these puts is up around 67, compared to implied volatility closer to 57 yesterday in the at-the-money June options. It is that rise in implied volatility that this investor is also taking advantage of, as the investor stands to profit if implied volatility declines and the stock trades above $20.