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Clean Energy Could Create a 137% Gain

Clean Energy Could Create a 137% Gain

Clean energy is an interesting technology that could change many aspects of life. It could also be the source of profits for long term investors. Short term traders could also benefit from the rapid changes that are common in the sector.

PR Newswire reported, “Generac Power Systems (NYSE: GNRC) has announced the nationwide availability of PWRcellTM and PWRviewTM clean energy technologies for consumers.

Offered through its vast network of partner installers, PWRcell is a revolutionary battery storage system that helps reduce home energy costs, protects homes from power outages, and is environmentally friendly.

PWRview is an advanced home energy monitoring system that allows homeowners to view their energy usage and make the most informed energy decisions helping to reduce costs even further.

PWRcell battery storage systems capture and store electricity from solar panels or the electric grid. The stored energy can be used during peak demand times when the cost of utility power is at its highest, saving homeowners money on electric bills.

In fact, PWRcell users can realize thousands of dollars of savings over the life of the product.

The stored electricity also provides protection against short-term power outages, with the highest storage capacity available on the market today.

The intuitive PWRview app processes energy data into useful information, enabling homeowners to make smarter decisions regarding their use of energy, allowing them to reduce consumption that may extend the amount of time the home can run on PWRcell-provided energy.

Generac PWRcell features an innovative modular storage system, which includes 8.6kWh batteries, a battery storage cabinet and an inverter.

Because it is made by Generac, each component is specifically engineered to seamlessly install and work together, unlike most solar storage products, which are assembled piecemeal from various manufacturers’ components. The system is fully customizable, and can expand up to 34.2kWh.

Unlike many competitors, PWRcell generates enough power to start heavy loads, such as well and sump pumps, dryers, and refrigerators, making it the most scalable, robust energy storage system available. And PWRcell battery technology means that it uses no fossil fuels to power the home.”

This news could be the reason the stock price recently moved up.

GNRC daily chart

The stock has been in an up-trend for weeks and could be positioned for more gains.

GNRC weekly chart

A Trade for Short Term Bulls

As with the ownership of any stock, buying GNRC could require a significant amount of capital and exposes the investor to standard risks of owning a stock.

To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.

Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.

To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.

This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.

bull call spread

Source: The Options Industry Council

Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.

This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.

A Specific Trade for GNRC

Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.

When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.

For GNRC, the February 21 options allow a trader to gain exposure to the stock.

A February 21 $110 call option can be bought for about $2.40 and the February 21 $115 call could be sold for about $0.92. This trade would cost $1.48 to open, or $148 since each contract covers 100 shares of stock.

The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.

In this trade, the maximum loss would be equal to the amount spent to open the trade, or $148.

The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.

For this trade in GNRC the maximum gain is $3.52 ($115 – $110= $5; $5- $1.48 = $3.52). This represents $352 per contract since each contract covers 100 shares.

Most brokers will require minimum trading capital equal to the risk on the trade, or $148 to open this trade.

That is a potential gain of about 137% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.