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Canadian Solar Inc. (CSIQ) Option Bears Eye an Earnings Miss

Put volume has picked up on CSIQ, despite the stock's technical tenacity

by 2/24/2014 12:12 PM
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Although Canadian Solar Inc. (NASDAQ:CSIQ) has tacked on about 35% this year, option players have been upping the bearish ante of late. During the course of the past five sessions, speculators at the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 5,751 puts on CSIQ, compared to just 753 calls, resulting in a top-heavy put/call volume ratio of 7.64.

Widening the scope to include data from the NASDAQ OMX PHLX (PHLX) -- and expanding the time frame to two weeks -- yields similar results. Specifically, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio has jumped to 1.64 from its Feb. 3 reading of 0.45. Even more telling of the bearish bias among option players is that the current ratio ranks in the highest annual percentile, meaning puts have been bought to open over calls at an annual-high clip in recent weeks.

Echoing this trend is CSIQ's Schaeffer's put/call open interest ratio (SOIR) of 1.17, which ranks higher than 99% of similar readings taken in the past year. Simply stated, short-term speculators have rarely been more put-heavy toward the equity.

In the front-month series, specifically, peak put open interest is found at the March 37 strike, and the majority of the 5,619 contracts that currently reside here have been bought to open. Given the out-of-the-money status of this strike, it could be that a portion of the buy-to-open activity here is a result of shareholders picking up some options-related insurance against a potential pullback.

As previously noted, CSIQ has done well in 2014, and in today's session, the stock is up more than 6% after the company scored a solar panel project in Japan. Additionally, J.P. Morgan Securities this morning initiated CSIQ with an upbeat "overweight" rating and a price target of $50 -- a 24% premium to its current perch at $40.23.

This year-to-date advance only highlights the stock's longer-term trajectory, with CSIQ having added close to 800% over the past 52 weeks. Assisting the equity in its mammoth rise has been in its 40-day moving average, which has served as a springboard for Canadian Solar since last April. More recently, the equity pulled back to this supportive trendline, and in the six other times this signal has occurred, CSIQ has averaged a 21-day return of 16.9%.

Daily Chart of CSIQ Since April 2013 With 40-Day Moving Average

The recent crop of put buyers hitting CSCO's options pits may be focusing more on fundamentals than technicals, though. The company is slated to take its turn in the earnings confessional before the market opens on Wednesday, March 5. Over the past eight quarters, the stock has posted a respective loss of 4.2% and 3.4% in the day and week following its results. For Canadian Solar Inc.'s (NASDAQ:CSIQ) fourth quarter, Wall Street is calling for a per-share profit of 52 cents.


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