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3 Solar Trades Searching for a Silver Lining

Make these plays while the solar losses pile up

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Options data is par for the course when dealing with a $3 stock. For instance, the CSIQ’s front-month put/call open interest ratio of 0.37 indicates that calls nearly triple puts in the May series of options. Peak call open interest totals 1,473 contracts at the out-of-the-money May 4 strike, while another 529 contracts reside at the May 3 call. Peak put open interest numbers a mere 382 contracts at the May 3 strike.

On Tuesday, CSIQ slipped further beneath former support at its 50-day moving average. The shares have ping-ponged around this long-term trendline since the middle of April, even as longer-term resistance in the form of CSIQ’s 200-day moving average descends in the $4 region overhead. Overall, CSIQ has posted descent gains for 2012, adding 20.75% this year. Additionally, the stock continues to trend sideways along key support at the $3 level.

Bullish CSIQ options traders might want to consider buying the in-the-money May 3 call, which was last offered at 40 cents, or $40 per contract, on Tuesday. Breakeven lies at $3.40, representing a gain of about 6.3% from yesterday’s close.

ReneSola Limited

Analysts also are expecting heavy losses for China-based solar wafer producer ReneSola (NYSE:SOL) when it reports Friday morning, with the consensus expecting a loss of 30 cents per share, down from a profit of 64 cents per share in the year-ago period. While MEMC’s earnings history is shaky, ReneSola’s is downright abysmal, with the company missing Wall Street’s expectations in each of the prior four reporting periods, resulting in an average downside surprise of more than 44%.

Naturally, expectations are low for ReneSola, with brokerage firms handing out nine hold or worse ratings and no buys, while 11% of the stock’s float is sold short. SOL’s options backdrop is similar to WFR’s in that options traders heavily favor calls in the May series. Currently, the front-month put/call open interest ratio arrives at 0.42, with calls more than doubling puts. As noted above, however, high put/call open interest ratios are common place for low single-digit stocks.

Technically, while SOL is down sharply from its 2012 peak near $3.40, the stock actually sports a gain of roughly 13.5% on the year. The stock currently is trading just below long-term support at $2 after the recent market turmoil forced the shares below this support level in early April.

Options traders looking to play SOL ahead of earnings might want to focus on the $1 level. At the close of trading on Tuesday, the May 1 call was asked at 85 cents, or $85 per contract. Breakeven for this trade lies at $1.85, a gain of 4.5% from yesterday’s close. Furthermore, this in-the-money call should help limit losses on any post-earnings decline for SOL.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities, nor does he have plans to enter such a position in the next 72 hours.

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