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Option Brief: Trina Solar Limited (ADR) (NYSE:TSL) is down 3.2% at $12.55, swooning in step with its fellow Chinese solar concerns in the wake of new U.S. import tariffs. While the trade relationship between China and the U.S. is cooling off (the chill is also being felt in the cyber world), TSL calls are heating up.
So far today, over 6,200 TSL calls have changed hands -- more than double the number of puts exchanged, and representing a 54% mark-up to the equity's average intraday call volume. Digging deeper, demand for short-term options is on the rise, as the security's 30-day at-the-money (ATM) implied volatility (IV) has jumped 5.8% to 62.2%.
A healthy portion of the action has transpired at the June 12 call, where nearly 1,400 contracts have traded -- mostly on the ask side, suggesting they were bought. Plus, IV at the strike has rocketed 5.4 percentage points higher, hinting at fresh initiations.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.79, the buyers stand to make money if TSL is perched atop $12.79 (strike plus VWAP) at the close on Friday, June 20, when the options expire. Profit potential is theoretically unlimited north of breakeven, while the maximum risk on the trade is the initial premium paid for the calls.
Despite today's ATM IV jolt, TSL's short-term options can be had at a relative bargain right now. The stock's Schaeffer's Volatility Index (SVI) of 58% rests just 7 percentage points from an annual low, suggesting the equity's front-month options are inexpensive, from a historical standpoint.
On the charts, Trina Solar Limited (ADR) (NYSE:TSL) has surrendered more than 8% in 2014, with recent rally attempts stalling in the face of its 200-day moving average. Off the charts, the U.S. unit of SolarWorld AG petitioned to include Taiwan on the aforementioned import duties, alleging that Chinese manufacturers are bypassing previously imposed tariffs by producing cells there. In response, Trina Solar called the accusations "unfounded" and "contrary to the principles of free and fair trade."