Hydrogen fuel cell solutions provider Plug Power (NASDAQ:PLUG) represented one of Wednesday’s top movers, with PLUG stock gaining almost 7%. Since potentially reaching a bottom on Jan. 18, shares appear to be printing a series of higher lows. As a result, PLUG could be poised to break above resistance, offering bullish speculators a near-term scaling opportunity.
In terms of catalysts, it appears PLUG stock is rising on a shrewd financial maneuver. According to TipRanks, Plug Power successfully issued $140.4 million of its 7% convertible senior notes due in 2026, thus swapping out the older 3.75% notes due in 2025. “This savvy exchange not only adjusted the interest terms but also left approximately $58.5 million of the 2025 Notes still in play,” wrote TipRanks.
Ultimately, the move bolsters Plug’s financial positioning and to be honest, the company can use all the help it can get. Since the start of this year, PLUG stock has lost more than 25%. Over the past 52 weeks, it’s down a staggering 67%.
Fundamentally, as InvestorPlace contributor Tyrik Torres pointed out, PLUG stock aligns with broader interest in hydrogen-powered equipment as companies across multiple industries seek to reduce their carbon footprint. According to Fortune Business Insights, the global fuel cell market could reach $36.41 billion by 2029, representing a compound annual growth rate of 29.7% from 2022.
Finally, to Torres’ point, the company announced a cost-cutting plan to save more than $75 million, thus potentially improving Plug’s earnings prospects and shareholder returns.
Bullish Pennants and Upside Resistance
As a long-term projection, it’s difficult to pinpoint a reasonable trajectory for PLUG stock. Looking at analysts’ forecasts for the next 12 months, price targets are all over the map, ranging from a low of $2.50 to a high of $18. Fortunately, the nearer-term picture appears easier to decipher and that’s the focus for this morning’s trade of the day.
First, PLUG stock appears to be forming what’s known in technical analysis as a bullish pennant formation. As mentioned earlier, shares may have hit a bottom on Jan. 18, when they closed at $2.42. After hitting a high of $4.70 on Feb. 1, PLUG’s price action has funneled into an increasingly tighter range of lower highs and higher lows.
Subsequently, at the apex point, the target asset can either break out or break down. Based on Wednesday’s robust swing higher, it appears the former outcome is likelier to materialize.
Second, Barchart’s Trader’s Cheat Sheet reveals multiple resistance barriers running from $3.57 to $3.90. Natively, that’s not exactly an encouraging profile. However, if PLUG stock can somehow break above these barriers, it will likely have a relatively clear shot toward the $6 level. That’s approximately the price point when PLUG broke down, succumbing to below $4 back in November 2023.
In other words, the bulls are looking to regain some lost territory. Therefore, out-of-money (OTM) call options seem awfully enticing.
Trade of the Day: Buy PLUG Stock $3.50 Calls
At the most basic level, Thursday’s trade is a simple one. When the market opens, buy PLUG stock. However, if you really want to dial up your risk-reward profile, OTM call options may be your best bet.
Specifically, I’m looking at the 17 May 2024 $3.50 call. The reason is, you’re almost getting “free” money.
On Wednesday, the option closed at a premium of 53 cents, yielding a bid-ask spread (as represented by the midpoint price) of only 1.89%. In contrast, the in-the-money (ITM) $3 call with the same expiration date had a spread of 5.19%.
Generally speaking, ITM options feature narrower spreads than OTM options, in part because the former category offers more predictable pricing due to the leveraging of intrinsic value in addition to time value.
Further, the $3.50 call is intriguing because if PLUG stock breaks above the resistance levels up to $3.90, this contract could command a very rich premium. Notably, the extremely high short interest of 27.63% of the float suggests that a little push higher can go a long way.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
