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Canadian Solar Inc. (CSIQ) Option Traders Eye a Post-Earnings Surge

Canadian Solar Inc.'s July 33 call was bought to open yesterday

by 5/14/2014 10:16 AM
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Option Brief: Leading into Canadian Solar Inc.'s (NASDAQ:CSIQ) Friday morning earnings announcement, put players have been active in the stock's options pits. On Tuesday, however, calls had the edge over puts. By the numbers, 3,423 calls switched hands, compared to fewer than 2,100 puts. Diving deeper reveals that a number of speculators either bet on a big rise over the next two-plus months, or hedged against one.

The most active strike of the session was CSIQ's July 33 call, where all of the 1,364 contracts traded did so on the ask side. Implied volatility ticked higher, and open interest rose the most of any strike overnight, collectively pointing to buy-to-open activity. With CSIQ trading at $27.63, the equity would need to surge more than 19% for the calls to move into the money. As such, delta on the option is docked at 0.34, suggesting a roughly 1-in-3 chance of an in-the-money finish at the close on Friday, July 18, which is when the calls expire.

With 8.5% of the stock's float sold short, a portion of yesterday's activity at the deep out-of-the-money strike may have been at the hands of short sellers hedging against any near-term upside. Regardless of the motive, should the stock fail to make a move of such magnitude, the most speculators stand to lose is the initial premium paid.

On the charts, CSIQ has put in a solid performance over the long term, with the shares up more than 270% year-over-year. More recently, though, the equity has sold off along with other momentum names, and since hitting a five-year high of $44.50 in late February, CSIQ has shed 38%.

Off the charts, Canadian Solar Inc. (NASDAQ:CSIQ) will unveil its first-quarter earnings report ahead of the bell this Friday. The alternative energy concern has fallen short of analysts' bottom-line estimates in five of the past seven quarters, resulting in an average single-session post-earnings drop of 5.3% for the equity. Going out one week subsequent to the quarterly report, this loss widens to 6.6%. Elsewhere on the fundamental front, CSIQ announced this morning that it has inked a solar panel deal with IKEA Australia.


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