CSIQ Options Play
Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar ingots, wafers, cells, modules, and other solar power products primarily under the Canadian Solar brand name and has Earnings on 6.6.2017. The company’s stock is currently trading around $12.91 in a 52 week range of $10.25-$18.54. The stock has gotten crushed over the past year with shares down 29.07% over the past 12 months. I think that the downside has more to come and CSIQ will get sold off on Earnings. To confirm this signal we will analyze the stocks historical movement record on earnings, the current expectations for movement being priced into the options market, the technical setup, and institutional order flow into the event.
First we will examine the stocks historical earnings performance record. We can see that over the past 8 quarters the stock has sold off 6 times on earnings day with an average move of 10.4%. This does not tell us that the stock is guaranteed to sell off this quarter but it does show us that there is a slight bearish bias in the performance of GCSIQ on earnings day. This means that as we work through the rest of our analysis will have a bullish bias.
With a sense of how the stock has moved on earnings day in the past we can calculate the expected movement for this quarter. To best isolate the expected movement in CSIQ we will use the shortest dated options that still contain the catalyst event. In this case we will use the June 9th weekly expiry. To measure the market makers expected move we will need to calculate the price of the at the money straddle. We looked at the CSIQ $13 strike straddle in the June 9thweekly expiry and it is implying a whopping $1.30 move.
The straddle is marking around $1.30. This implies an expected move of around $1.30. This implies a move of around 10.% by Friday’s expiry. Since this is in line with the stocks historical movement record we know that there an opportunity to put on a good reward vs risk setup CSIQ.
Upside target = $13 + $1.30 = $14.30
Downside Target = $13- $1.30 = $11.70
With these targets in mind we can look at the chart in CSIQ to see if trend agrees with the bearish bias in CSIQ price action.
Here we can see that the stock is trading above the Ichimoku Cloud and is firmly in bearish territory. One last indication also points to the possibility for a move to the downside in CSIQ.
I think that CSIQ will move lower on Earnings, but I want to make sure I am getting a favorable reward to risk setup. I think the stock will move lower, but I am not sure how much
Potential trade: Selling 1 CSIQ Weekly 13-14 Call Spread for $.50 credit
Risk: $50 per 1 lot
Reward: $50 per 1 lot
This kind of analysis can be used to find setups like this ahead of earnings and other catalyst events.
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