Call Buyers Rush Canadian Solar Inc. (CSIQ) Ahead of Earnings

Canadian Solar Inc. (NASDAQ:CSIQ) will report earnings ahead of tomorrow's opening bell

Aug 17, 2016 at 11:25 AM
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Canadian Solar Inc. (NASDAQ:CSIQ) is scheduled to report quarterly earnings ahead of tomorrow's opening bell, and before the big event, the solar stock is down 4.2% at $12.53 -- fresh off a three-year low of $12.35. Historically, CSIQ stock has tended to make volatile moves in the session subsequent to reporting, and it looks like options traders have been betting on -- or hedging against -- a post-earnings swing to the upside in the weeks leading up to this quarterly report.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, options traders have bought to open 4,963 calls during the past 20 sessions, compared to 1,004 puts. Echoing this call-skewed set-up is CSIQ's Schaeffer's put/call open interest ratio (SOIR) of 0.46, which ranks in the 38th annual percentile. In other words, short-term speculators are more call-heavy than usual.

Drilling down on the front-month series, peak open interest of nearly 1,900 contracts is found at the August 15 call. According to the major options exchanges, a healthy portion of these calls have been bought to open in recent months -- most recently during a sector-wide rally -- meaning speculators expect CSIQ to settle north of $15 at this Friday's close, when the standard August-dated options expire. With 12.2% of the stock's float sold short, though, some of this activity could a result of shorts hedging their bearish bets against any upside risk.

Regardless, the $15.00-$15.50 region has served as a stiff level of resistance for CSIQ, since the stock fell south of here in late June. This is reflective of the security's longer-term technical struggles, with shares of CSIQ off 58% from its late-December annual high at $29.83.

Meanwhile, if history is any guide, CSIQ could be poised to make a lofty move in tomorrow's trading. Over the past eight quarters, the stock has averaged a single-session post-earnings swing of 12.2%. In five of those quarters, the post-earnings price action has resolved to the downside, although shares of Canadian Solar Inc. (NASDAQ:CSIQ) rallied 12.4% in the session subsequent to reporting in May. This time around, the options market is pricing in an even bigger 14.6% swing.

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