Stocks quoted in this article:
Option Brief: Canadian Solar Inc. (NASDAQ:CSIQ) was one of yesterday's biggest gainers, tacking on 7.7%. In fact, the solar sector as a whole was in rally mode, fueled by fundamental news at SolarCity Corp (NASDAQ:SCTY) and Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE). On CSIQ's options front, calls traded at triple the typical daily pace, with 13,000 contracts exchanged by session's end. What's more, the stock's 30-day at-the-money implied volatility rose nearly 2%, conveying strong demand for short-term contracts.
Along those lines, CSIQ's most active strike was the July 26 call, where almost 2,600 contracts changed hands -- 92% at the ask price, suggesting they were bought. Open interest increased overnight more than any other strike, too, making it safe to assume new positions were purchased at a volume-weighted average price (VWAP) of $2.43. Data from the International Securities Exchange (ISE) confirms a portion of the in-the-money calls were, indeed, bought to open.
That said, the traders will profit if CSIQ is sitting atop $28.43 (strike plus VWAP) at the close on Friday, July 18, when back-month options expire. Gains are theoretically unlimited north of there, while potential losses are capped at the initial premium paid, should the shares finish below the strike at expiration.
This morning, Canadian Solar Inc. (NASDAQ:CSIQ) has given back a portion of yesterday's gains, off 3% at $27.15. This isn't too surprising, considering yesterday's rally brought the equity north of its upper Bollinger Band, signaling a move into overbought territory. As such, delta on the aforementioned call has slipped to 0.60 from 0.69 at yesterday's close.