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Canadian Solar Inc. (CSIQ) Bulls Bank On Extended Rally

Canadian Solar Inc. call volume is off the charts this afternoon

by 4/24/2014 12:27 PM
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Option Brief: Canadian Solar Inc. (NASDAQ:CSIQ) has tacked on 5.7% this afternoon to trade at $30.88. Meanwhile, call volume is running at more than five times the typical intraday rate. Against this backdrop, the solar stock's 30-day at-the-money implied volatility (IV) has gained 4.5% to 71.1%, indicating elevated demand for short-term options.

Accordingly, the most active strike in CSIQ's options pits is the May 33 call, where nearly 4,000 contracts are on the tape -- the majority of which traded in two 1,000-plus-contract blocks. Digging deeper, 85% of the calls changed hands at the ask price, IV is trending higher, and volume has outrun open interest at the strike -- all signs of buy-to-open activity.

By purchasing the out-of-the-money contracts, today's traders expect CSIQ will extend its rally to north of $33 by the close on Friday, May 16, when the front-month options expire. Technically speaking, the stock has spent the majority of 2014 above this strike, and has been on a tear since bouncing off of its 50-week moving average last week. However, even if the shares remain south of the strike through expiration, the speculators risk losing no more than the initial premium paid.

Luckily for short-term traders, Canadian Solar Inc.'s (NASDAQ:CSIQ) Schaeffer's Volatility Index (SVI) of 68% ranks lower than 87% of comparable readings from the past 12 months. This suggests front-month options are currently inexpensive, from a volatility perspective. Also, the stock's Schaeffer's Volatility Scorecard (SVS) checks in at 100, meaning CSIQ has tended to make outsized moves, relative to what the options market has priced in. Looking ahead, the company is tentatively scheduled to report first-quarter earnings the same day front-month options expire.


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