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Option Brief: Canadian Solar Inc. (NASDAQ:CSIQ) is in rally mode today, after announcing it has inked a deal to provide Japan with 43 megawatts (MW) of photovoltaic (PV) modules for the country's second largest solar power plant project. At last check, the equity was up 8.5% at $29.40, and not surprisingly, call volume has soared to more than four times the average intraday pace. Diving deeper, it seems a number of speculators are either betting on a continued rise for CSIQ, or perhaps hedging against one.
The most active strike in CSIQ's options pits thus far is the July 35 call, where 2,233 contracts are on the tape. Nearly three-quarters of this activity has occurred on the ask side, implied volatility has ticked higher, and volume outstrips open interest, collectively pointing to the purchase of new bullish positions. However, with short interest up 41.7% in the last two reporting periods -- now accounting for 10.5% of the stock's available float -- a portion of this activity could be at the hands of short sellers hedging against any additional upside.
Regardless of the motive, as a result of the recent sell-off in momentum stocks (CSIQ has grown nearly seven-fold year-over-year), the stock has not seen the north side of $35 since March 24. As such, delta for the call is docked at 0.36, or 36%, suggesting a less than 2-in-5 chance of an in-the-money finish at the close on Friday, July 18, which is when the options expire.
As noted, CSIQ has been losing ground since hitting a five-year high of $44.50 on Feb. 28, with the shares off about 34%. Leading the stock lower has been its 20-day moving average, which quickly contained an early April rally attempt by CSIQ. This trendline is once again in focus, with Canadian Solar Inc. (NASDAQ:CSIQ) struggling against this recent layer of resistance amid today's upswing.