Option Tip is to Buy CSIQ Puts due to Bearish Implications
Last week, CSIQ popped up in the headlines with some very unappealing news. Westinghouse Solar (Nasdaq: WEST) filed suit against the firm, alleging that Canadian Solar and sector peer Zep Solar are infringing upon two of its' patents.
Canadian Solar Inc. (Nasdaq: CSIQ) designs, manufactures, and sells solar module products that convert sunlight into electricity for a variety of uses. The Company's products include a range of standard solar modules for use in a wide range of residential, commercial, and industrial solar power generation systems.
The Reasoning for the Option Tip
According to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders are buying in the last few days, to open, puts on CSIQ in preference to calls, at a rate of 8 to 1. The resulting put/call volume ratio of 338.63 indicates a strong bias toward bearish bets over their bullish counterparts. The bulk of the volume revealed that volume consisted of newly opened positions.
However, this pessimistic options attention is nothing new for CSIQ. In fact, the stock currently sports a 10-day ISE/CBOE/PHLX put/call volume ratio of 2.63, as puts bought to open have nearly tripled calls over the past couple of weeks. This ratio ranks higher than 100% of other such readings taken during the previous year, as traders are purchasing puts over calls at an annual-high pace.
CSIQ's put/call open interest ratio stands at 1.37, with puts outnumbering calls among options slated to expire within three months. Again, this ratio arrives in the 100th percentile of its annual range, pointing to peak levels of pessimism among short-term options players.
Short sellers are also piling on the pressure. Short interest on CSIQ rose by 27.3% over the past month, and now accounts for a substantial 21% of the equity's float -- or 7.1 times CSIQ's average daily trading volume.
Equally uninspiring is CSIQ's technical performance, with the shares resting on a year-to-date deficit of roughly 69%. Since early July, the equity's downtrend has been highlighted by stubborn resistance at its 10-day and 20-day moving averages.
In light of the stock's drastic decline, the strong preference for puts on CSIQ seems about right. Unless the shares can stage a serious turnaround on the charts, the purchase will have little motivation to revise their opinion of the alternative energy concern.
Canadian Solar has overhead space with shares priced $3.53, or 54.5% below the average consensus analyst price target of $7.76. The stock should find initial resistance at its 50-day moving average (MA) of $5.87 and further resistance at its 200-day MA of $10.12.
Over the past year, Canadian Solar has traded in a range of $3.05 to $17.63 and is now at $3.53, 16% above that low. Over the past week, the 200-day moving average (MA) has gone down 2.2% while the 50-day MA has declined 8.8%.
The Option Tip
The option tip is to buy CSIQ's November 2 put.
(Last price was $0.15, the ask price is $0.20)
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