The renewable energy sector has had a 2016 to forget. The sector is down 54% for the year and there is significant negative sentiment following Donald Trump’s election victory.
Trump is very much pro fossil fuels and doesn’t seem to care too much about the environmental impact.
In a recent article in The Guardian, journalist Michael Liebreich reported that:
“No one is facing the future with more trepidation than those working on clean energy, clean transportation, climate and the environment. Hillary Clinton had promised to build on Obama’s substantial progress in this area; now they worry that it may be reversed, and then some.”
Renewable energy could face further headwinds in 2017, but investors looking for a high risk, high reward play could do worse than focusing on this beaten down sector.
Some stocks in the sector, such as JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO), SunPower Corporation (NASDAQ:SPWR) and Vivint Solar Inc (NYSE:VSLR) are sitting near 52-week lows, so that doesn’t exactly fill you with confidence.
Earlier this week, I looked at the top 11 renewable energy stocks by market capitalization. Seven of those eleven have negative earnings per share.
First Solar, Inc. (NASDAQ:FSLR) is a former high flyer that traded as high as $311 back in 2008. It’s currently trading at $32.68.
Green Plains Inc (NASDAQ:GPRE) is the clear standout of the group. While it is down 36% from its 2014 high, it is 122% above the 2016 low.
In a sector that has clearly under performed during 2016, Green Plains has been a clear winner.
The below chart comparing First Solar, Inc. (NASDAQ:FSLR) and Green Plains Inc (NASDAQ:GPRE), clearly shows the level of out performance over the last 12 months.
Investors wanting to gain exposure to Green Plains could look at doing so via a cash secured put. This trade allows investors to purchase the stock for less than the current price should the stock fall below the put strike price.
The June 16, 2017 $28 put is trading at $3.15. If the stock is below $28 on the expiry date, the investor will be required to buy the stock for $28.
They get to keep the $3.15 in option premium received for selling the put, giving an effective purchase price of $24.85.
If Green Plains stays above $28 at expiry, the investor earns a healthy 11.25% return which equates to 23.46% per annum.
Gavin has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. He likes to focus on short volatility strategies. Gavin has written 5 books on options trading, 3 of which were bestsellers. You can read more from Gavin at Options Trading IQ.