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JA Solar Holdings Co., Ltd. (ADR) (JASO) Bears Go Bargain Hunting

Long puts are heating up ahead of earnings from JA Solar Holdings Co., Ltd. (ADR)

by 3/6/2014 2:28 PM
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Option Brief: JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) is one of the top-performing stocks on the Nasdaq (on a percentage basis) today, with the equity up 5.6% at $10.71. In fact, the security has more than doubled over the past year. Nevertheless, JASO put options continue to fly off the shelves at a faster-than-usual clip, with more than 5,200 contracts exchanged so far -- almost three times the norm.

Nearly all of the action has transpired at the March 10 put, where more than 4,600 contracts have changed hands. The majority of the puts traded on the ask side, and volume has outstripped open interest at the strike, hinting at some buy-to-open activity.

By purchasing the puts to open, the buyers have one of two motives: to profit from or to hedge against a short-term retreat from JASO. In the case of the former, the buyers want JASO to backpedal into single-digit territory before options expiration on Friday, March 21 -- just days after the company's turn in the earnings confessional on Monday, March 17. In the case of the latter, the traders are shareholders above all else, but the puts lock in an acceptable price at which to hit the exits ($10 per share), should the stock suffer a post-earnings swoon south of $10.

Historically, JASO has fallen short of Wall Street's bottom-line earnings estimates in seven of the past eight quarters. After reporting, however, the stock has averaged a gain of 7.6% in the subsequent session, and has rallied 1.6% in the subsequent week.

Whatever the motive, JA Solar Holdings Co., Ltd.'s (ADR) (NASDAQ:JASO) short-term options are surprisingly inexpensive ahead of earnings, relatively speaking. The stock's Schaeffer's Volatility Index (SVI) of 85% sits just 8 percentage points from an annual low, suggesting now is an opportune time to purchase short-term contracts.


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