Stocks quoted in this article:
JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) call volume is running at six times the average intraday pace this afternoon, despite a lack of notable news drivers. Of the roughly 12,000 contracts on the tape, more than 10,300 have crossed at the May 12 call, which has caught the attention of option sellers.
Diving into the details, 80% of the contracts at the front-month JASO strike -- including blocks of 4,000 and 3,000 -- have changed hands at the bid price, indicating seller-driven action. Also, volume has easily surpassed the 816 contracts in open interest, and information from the International Securities Exchange (ISE) confirms the aforementioned lots were, in fact, sold to open.
By writing the calls, the traders anticipate JASO shares -- currently 0.4% lower at $10.93 -- will remain at or below $12 through the closing bell on Friday, May 16, when front-month options expire. If the solar stock surges past the strike within the option's lifetime, however, the sellers may be assigned, and forced to deliver the shares for $12 apiece, no matter how much they're worth.
Given the stock's year-to-date gain of more than 19%, it's possible that today's sold calls are covered, which means the traders are stockholders who own a sufficient number of shares to satisfy any potential assignment obligations. (In the case of the 4,000-contract block, this would be a hefty 400,000 shares.) If this is the case, the sellers' primary goal is to supplement income in the event of lackluster price action in the near term, but ultimately hold on to their JASO shares to exploit any long-term gains.
Taking a step back, call selling has been a popular play in JA Solar Holdings Co., Ltd.'s (ADR) (NASDAQ:JASO) options pits lately. Specifically, on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen more than 5,200 calls sold to open in the last 10 trading days, versus fewer than 2,000 bought to open.