Canadian Solar Call Options Light Up Ahead Of Earnings – Schaeffers Research (blog)

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Canadian Solar Inc. (NASDAQ:CSIQ) is set to report second-quarter earnings Monday morning, and investors are keeping an eye trained on the solar stock, which has historically made sizable post-earnings moves. Below, we will breakdown CSIQ stock’s post-earnings history, and examine how analysts and options traders are playing the solar stock.

Canadian Solar Surrounded By Skepticism

CSIQ stock is up 4% to trade at $17.21 today. The shares have added 41% year-to-date, and have outperformed the broader S&P 500 Index (SPX) by more than 30 percentage points during the past two months. Canadian Solar was one of many solar stocks to break out in mid-June, thanks to talk of a “solar wall” along the U.S./Mexico border, with CSIQ going on to notch an annual high of $18.12 on July 19.

However, there are some analysts who remain skeptical. Of the nine brokerages covering CSIQ, eight rate it a “hold” or worse. This means there is plenty of room for upgrades that could lure more buyers to Canadian Solar’s bandwagon.

Furthermore, there are still plenty of short sellers sniffing around CSIQ stock. Although short interest has decreased by 10% during the last reporting period, nearly 12% of the stock’s total available float is sold short. It would take nearly four days to repurchase all of those pessimistic positions at CSIQ’s average daily trading volume. This means that a strong earnings report could compel more bears to jump ship, pushing CSIQ stock higher.

CSIQ Call Options Red-Hot

Historically speaking, CSIQ stock has averaged a one-day move of 10.4% in either direction in the session following its last eight earnings releases. While CSIQ stock has moved lower after the company’s last three earnings reports, it boasted a one-day 17.5% rally following earnings exactly one year ago.

In the options pits, over 17,000 calls have been traded today — 10 times the average intraday call volume. Per Trade-Alert, it looks like one trader may have set up three-way call spread, buying to open September 17 calls, and funding them by simultaneously selling the September 18 and 19 calls. It appears this strategist is anticipating Canadian Solar to break out after earnings to the $18 level. 

However, today’s options activity is just more of the same for Canadian Solar, which has seen accelerated call buying ahead of tomorrow’s report. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 10-day call/put volume ratio of 14.39 is in the 95th percentile of its annual range. Considering the notable short interest on CSIQ, on top of the stock’s recent rally, some of the recent call buying — particularly at out-of-the-money strikes — could be attributable to shorts hedging with calls.

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