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Canadian Solar Inc. (NASDAQ:CSIQ) is rallying along with most of its sector peers today, up 5% at $27.62 in the wake of the White House's new alternative energy plan. Against this backdrop -- and ahead of the company's turn in the earnings confessional later this week -- options players are either gambling on or hedging against a short-term pullback for CSIQ.
So far today, roughly 3,400 puts have crossed the tape -- a 66% mark-up to the stock's average intraday put volume. Speculators have shown an increased appetite for short-term contracts, as the security's 30-day at-the-money implied volatility (IV) is 3.1% higher at 80.3%.
Digging deeper, most of the action has centered on the out-of-the-money May 26 put, where nearly 2,200 contracts have changed hands. More than three-quarters of the puts crossed on the ask side, and IV was last seen 16 percentage points higher, hinting at buy-to-open activity.
"Vanilla" option bears will profit if CSIQ settles Friday -- when front-month options expire, and the day the company reports earnings -- below breakeven at $25.34 (strike minus volume-weighted average price of $0.66). If the buyers are CSIQ shareholders, however, their primary goal remains for CSIQ to muscle higher; the protective puts simply lock in an acceptable price at which to sell their stake ($26 per share), should the stock take a turn for the worse this week.
Whatever the motive, the buyers' risk is capped at the initial premium paid for the puts, should CSIQ finish the week beneath the strike. Now is still an opportune time for short-term premium buyers, too, as the stock's Schaeffer's Volatility Index (SVI) of 72% sits in the 21st percentile of its annual range. In other words, CSIQ's short-term contracts are inexpensive right now, from a volatility perspective. Likewise, the security's Schaeffer's Volatility Scorecard (SVS) of 99 implies that CSIQ has tended to make outsized moves, relative to what the options market has priced in.
On the charts, CSIQ has given up 7.3% in 2014, and has underperformed the broader S&P 500 Index (SPX) by nearly 33 percentage points during the past three months. Off the charts, things aren't much better, as the firm has missed the Street's bottom-line earnings estimate in five of the past seven quarters, resulting in an average one-week post-earnings loss of 6.6% for the shares.
As such, it's no surprise to find options players ramping up their bearish bets of late. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.00 sits just 6 percentage points from a 52-week acme. In simpler terms, options players have bought to open Canadian Solar Inc. (NASDAQ:CSIQ) puts over calls at a near-annual-high pace during the past two weeks.