Home Site Map About Us My Account Shopping Cart Help Sign In

Options Update: Canadian Solar Inc. Call Traders Forecast Sunny Skies

Options traders place bets on a continued rally for solar firm

by Joseph Hargett (jhargett@sir-inc.com) 3/26/2009 2:30 PM

Text Size |

Email a friend |

Print |

Keywords:

Canadian Solar Inc. (CSIQ: sentiment, chart, options) has joined the rest of the solar sector in a broad rally today, as investors are shaking off a fourth-quarter loss at Solarfun Power (SOLF) in favor of reports out of China that the Chinese government is open to supporting the local development of solar energy. According to Asian technology newspaper DigiTimes, China hasn't yet designed a program or set a schedule for solar energy subsidies, and attributed the favorable comments, made at a Taiwan-China photovoltaic industry convention, to Chinese Department of Renewable Energy officials. While CSIQ is incorporated in Canada, the company conducts all of its manufacturing operations in China.

"This is consistent with what we have always heard and thought," Cowen & Co. analyst Robert Stone told Dow Jones Newswires. "The Chinese market could potentially be very large because China uses a lot of energy and demand grows with the economy," Stone added.

CSIQ has long been a bullish favorite in the options pits. The stock's Schaeffer's put/call open interest ratio (SOIR) currently rests at a reading of 0.29, indicating that calls nearly quadruple puts among near-term options. This ratio also ranks below 92% of all those taken in the past year, meaning that investors have been more bullish toward CSIQ only 8% of the time in the prior 52 weeks.

This bullish options configuration is supported by data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). Currently, the ISE/CBOE 50-day call/put volume ratio arrives at 20.87, meaning that 20 calls have been bought to open for every put purchased on these exchanges during the prior 2 weeks. Driving the point home, this ratio has been higher only 3% of the time in the past 12 months, underscoring the rising preference for purchased CSIQ call options.

The trend toward call options is holding firm in today's trading, with nearly 4,000 calls changing hands on CSIQ so far. This volume has outpaced the stock's average daily call volume by more than 10 to 1, placing the shares on our Intraday Volume Explosion List. The most active option is the out-of-the-money April 7.50 strike, as more than 3,300 of these contracts have traded at this front-month strike. Looking at the chart below, you can see that nearly all of this volume is changing hands at the ask price, suggesting that we are looking at the initiation of fresh buy-to-open call positions on CSIQ.

The Anatomy of a Canadian Solar Call Position

Digging into today's CSIQ call data, I noticed 2 blocks of April 7.50 calls totaling 1,000 contracts trading at the ask price of $0.20 at 10:10 a.m. Eastern time. Assuming the options were bought to open, the total outlay for this position would be $20,000 -- (0.20 * 100)*1,000 = $20,000. For this trade to reach breakeven, CSIQ would need to rally about 60% to $7.70 per share from yesterday's close of $4.83 per share by the time the options expire on April 17. The maximum loss on this position is limited to the initial investment of $20,000.

CSIQ was already in rally mode heading into today's trading, rebounding nicely from its early March lows. However, the stock faces some potentially stiff overhead technical resistance. Let's see if the stock's technical and sentiment backdrops point toward any additional gains for the shares.

Checking the Charts

From a technical perspective, CSIQ has outperformed the S&P 500 Index (SPX) by 21% on a relative-strength basis during the past 20 trading days. The equity has garnered short-term support at its 10-day and 20-day moving averages, placing the shares on course to close their first week above their 10-week and 20-week trendlines since June 2008. However, the stock has still plunged more than 77% during the past 52 weeks, and it could take more than a short-term rally to erase the stigma attached to this poor long-term technical performance. Furthermore, the security is now battling to reclaim the 6 level, site of former support and resistance for the shares. Most recently, this region capped the equity for nearly the duration of January.

Weekly chart of Canadian Solar since June 2008 with 10-week and 20-week moving averages

The Sentiment Drivers

Outside of the rampant optimism among options traders, investors are heavily bearish toward CSIQ. Currently, all 7 analysts following the shares rate them a "hold" or worse, according to Zacks. Meanwhile, Thomson Reuters reports that the consensus 12-month price target for CSIQ rests at $3.56 per share - a discount of 68% to the equity's current trading range near $6 per share. Any upgrades or price-target increases from this negative bunch could provide additional buying pressure for the security.

Meanwhile, short sellers have also taken out a substantial bearish position on CSIQ. Despite a meager decline of 2.35% in the number of CSIQ shares sold short during the most recent reporting period, nearly 16% of the stock's float remains shorted. If the equity can make a clean break above the 6 level, it could send these bears scrambling for the exits, creating a potential short-squeeze situation.

The Verdict? Canadian Solar shares are already benefiting from short-term momentum that could pressure bearish investors in the short-selling community. The situation could be exacerbated further if rumors of the Chinese government's support for the solar sector are confirmed. Given this backdrop, it is not entirely out of the question for CSIQ to gain the additional 25% needed for an April 7.50 call to reach breakeven. While this trade feels a bit too aggressive for my tastes, there are few alternate strikes to bring the risk down. The only other reasonable option in the April series would be the in-the-money 5 call, which is probably where I would place my bets, just in case the stock struggles to overcome resistance in the 6 region for a few trading sessions.

A bull? A bear? Conservative? Aggressive? No matter what kind of investor you are, option trading offers you tools to enhance and protect your portfolio. Learn how from Bernie Schaeffer, the highly respected equities and option market veteran. Bernie's home study course will show you how to leverage relatively small amounts of capital into big profits -- in just 10 days. Includes CD, DVD, and other extras. Click here to learn more.

Discuss this article:

Post your own comment

Options Update: Dell Inc. Short Strangled Ahead of Earnings

(11/19/2009 2:15:00 PM)

After the close of trading tonight, Dell Inc. (DELL: sentiment, chart, options) is expected to report a third-quarter profit of 28 cents per share, down from earnings of 37 cents per share for the same quarter last year. Historically, the company has bested the consensus estimate in each of the prior four reporting periods, with an average upside surprise of 6.1%. Heading into the event, volume on both sides of the put/call coin has nearly quintupled Dell's daily average. Some 16,500 puts and 31,000 calls have changed hands so far today, with traders focusing most of their attention on the December 17 call and the December 15 put.

read more...

Options Update: A Calendar Spread for Chesapeake Energy Corp.

(11/18/2009 3:10:00 PM)

Chesapeake Energy Corp. (CHK: sentiment, chart, options) has drawn considerable put volume today, as the shares follow the rest of the market lower. Specifically, put volume has swelled to nearly four times CHK's daily average, with more than 17,000 of these bearishly oriented contracts changing hands so far, according to data from our Intraday Volume Explosion List. The most popular strike has been CHK's November 24 put, where some 7,800 contracts have changed hands, mostly at the bid, suggesting these contracts were sold.

read more...

Options Update: An Exxon Mobil Synthetic Short

(11/17/2009 1:10:00 PM)

Option activity has been brisk on oil giant Exxon Mobil Corp. (XOM: sentiment, chart, options) today, as traders react to this morning's upgrade at Barclays. Specifically, the brokerage firm lifted XOM to "overweight" from "equal weight," stating that the company can manage organic growth of more than 3% in 2010. Barclays also boosted its price target on XOM to $92 per share from $90 per share.

read more...

Options Update: A Long Call Ladder on Target Corp. Ahead of Earnings

(11/16/2009 2:30:00 PM)

Ahead of the open tomorrow, Target Corp. (TGT: sentiment, chart, options) is slated to release its quarterly earnings report. Currently, the Street is expecting a profit of 50 cents per share out of the retailing giant, down sharply from last year's profit of 79 cents per share for the same quarter. Historically, TGT has topped the consensus estimate twice, missed once, and matched once during the prior four reporting periods. However, following a pair of solid reports in the prior two periods, TGT has logged an average upside surprise of about 10% during the past year.

read more...

Options Update: Short Straddling The Walt Disney Co. Post-Earnings

(11/13/2009 1:30:00 PM)

Shares of The Walt Disney Company (DIS: sentiment, chart, options) have jumped more than 4% after the company reported better-than-expected fourth-quarter earnings. Earnings reports are not only capable of sparking large moves in a security, but they can also be responsible for lifting implied volatility heading into the event. Judging by DIS' options activity in today's trading, it appears that at least one trader is betting on a drop in implieds following the event.

read more...

Options Update: A Short Ratio Put Spread for Ross Stores Inc. Ahead of Earnings

(11/12/2009 2:45:00 PM)

Ross Stores Inc. (ROST: sentiment, chart, options) is scheduled to release its quarterly earnings report ahead of the market open on Nov. 19. Currently, the Street is looking for a profit of 84 cents per share. Technically, ROST has been on fire in 2009, soaring more than 57% along the support of its 10-week and 20-week moving averages. The shares have slipped in recent weeks, however, calling into question the stock's technical staying power.

read more...

Opening View: Rally Fatigue Sets in Despite Wal-Mart and Hewlett-Packard Reports

(11/12/2009 8:00:11 AM)

Despite a strong quarterly earnings report from Wal-Mart Stores Inc. (WMT) and Hewlett-Packard Co.'s (HPQ) buyout offer for 3Com Corp. (COMS), Wall Street appears poised for a negative start to the regular session of trading. At last check, U.S. stock futures on the Dow Jones Industrial Average (DJIA) were down 44 points at 10,215, or about 42 points below fair value. Futures on the S&P 500 Index (SPX) are about 5 points below fair value, and it would appear that the broad-market index is going to struggle with technical resistance in the 1,100 level once again. The SPX's inability to close above this key technical hurdle in yesterday's trading disappointed many technicians, which could be feeding this morning's sour mood.

With stocks losing favor ahead of the open, the U.S. Dollar Index is once again benefiting from a safe-haven bid, gaining 0.21% to 75.23 in pre-market activity. Meanwhile, the December gold futures contract has added $1.40 to $1,116.20 an ounce. Finally, crude oil for January delivery is down 56 cents, at $79.36 per barrel in electronic trading.

Wal-Mart Stores Inc. (WMT) reported that third-quarter earnings rose to $3.24 billion, or 84 cents per share, from $3.14 billion, or 80 cents per share, a year earlier. Sales rose to $99.4 billion from $98.3 billion. Analysts were expecting a profit of 81 cents per share on sales of $99.2 billion. Wal-Mart forecast fourth-quarter profit of $1.08 to $1.12 per share, and raised its full-year outlook to $3.57 to $3.61 per share. Wall Street is currently looking for earnings of $1.12 per share in the fourth quarter and $3.58 per share for the year.

read more...

Options Update: General Electric Co. Bull and Bear Debit Spreads Abound

(11/9/2009 2:35:00 PM)

Options traders appear to be split down the middle when it comes to prospects for General Electric Co. (GE: sentiment, chart, options). For instance, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.00 indicates that put and call open interest is practically dead even among options with less than three months until expiration. Furthermore, GE's SOIR also ranks near the middle of its annual range, underscoring the relatively mixed view among options speculators.

read more...

Options Update: Vertical Call Spread for NVIDIA Corp.

(11/6/2009 1:00:00 PM)

After the close of trading last night, NVIDIA Corp. (NVDA: sentiment, chart, options) reported a third-quarter profit of $107.58 million, or 19 cents per share, compared with a profit of $61.75 million, or 11 cents per share, for the year-earlier period. The company blew past the consensus estimate, and guided higher for the fourth quarter. Following the report, NVDA shares jumped nearly 6% higher in after-hours trading, and the stock has added to this lead in today's trading, advancing nearly 7% before noon.

read more...

Options Update: An Iron Condor for Oracle Corp.

(11/5/2009 1:30:00 PM)

The fact that the company's earnings report is now in the rearview mirror hasn't slowed Oracle Corp. (ORCL: sentiment, chart, options) options traders in the least. Overall, both put and call volume has more than doubled the stock's daily average, with traders centering on a quartet of front-month strikes. Specifically, ORCL was bombarded by heavy activity at its November 20 and 21 puts, with the November 22 and 23 calls also receiving considerable attention. More than 1,000 contracts traded on each of these strikes within roughly the first hour and a half of trading.

read more...

SchaeffersResearch.com can alert you to new articles containing your favorite authors, ticker symbols or keywords. Enter your favorite authors, ticker symbol or keyword and click go.

Today's Most Popular Stories

Read

Emailed

Editor's Pick

Options Edge: CF Industries, Solarfun Power, E TRADE Financial, and Conseco, Inc. 11/19/2009 9:29 AM

Options Report: Buying Opportunities Among Internet Retailers 11/19/2009 3:30 PM

Schaeffer's Media Outtake: Thoughts on Hedging, Volatility 11/19/2009 4:15 PM

Market Recap: Chipmakers Blaze the Path Lower on Sector Downgrade 11/19/2009 4:17 PM

Featured Companies

Canadian Solar Inc. (CSIQ)
Solarfun Power Holdings Co. Ltd. (SOLF)

Add to Watchlist

Add Alert

Receive FREE access to Schaeffer�s

premier online options magazine!

Podcasting

Videocasting

	Schaeffer's Daily Q&A: What Is Put Selling Nov 20 2009 4:12 PM
Options Stew: A Taste of the Week's Spiciest Pl... View More...

Partner Center

<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/ff2.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=166;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=166;s=1;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>	<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/ff2.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=167;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=167;s=1;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>	<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/ff2.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=168;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=168;s=1;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>	<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/ff2.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=169;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=169;s=1;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>
<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/ff2.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=174;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=174;s=1;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>	<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/fo.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=171;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=171;s=0;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>	<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/ff2.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=172;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=172;s=1;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>	<script language="JavaScript" src="http://c5.zedo.com/jsc/c5/fo.js"></script><noscript> <a href="http://xads.zedo.com/ads2/r?n=457;c=173;s=1;x=1024;u=j;z=[timestamp]" target="_blank"><img border="0" width="120" height="60" src="http://xads.zedo.com/ads2/x?n=457;c=173;s=0;x=1024;u=j;z=[timestamp]" alt="Click here"></a> </noscript>

Monday Morning Outlook:
Prepare for the investing week ahead. Every week, Bernie and his staff provide you with their insight about what has happened and, more importantly, what will happen in the market. We dig deep and show you what's happening behind the scenes, and tell you which indicators are predicting major market moves.

Market Recap:
At the end of every market day, we review the trading day in detail, covering major events and key market developments. Don't miss this critical, timely and insightful report.

Opening View:
Every morning, our research staff analyzes the prior day and the overnight markets, and monitors the morning wires to give you an accurate preview of the day to come. delivered to your inbox before the opening bell.

First Name Add your first name Last Name Add your last name Email Add a valid address Password Min. size 4 chars

I would like to be contacted periodically by Schaeffer's Investment Research concerning its own products and services, and those of carefully selected advertisers. I understand that I can opt-out of further messages at any time.

� 2009 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242
Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: service@sir-inc.com

Options Update: Canadian Solar Inc. Call Traders Forecast Sunny Skies

Options traders place bets on a continued rally for solar firm

by Joseph Hargett (jhargett@sir-inc.com) 3/26/2009 2:30 PM

CSIQ

SOLF

stocks

options

weekly