Solar stocks are once again back in the limelight this week, as several players in the sector are preparing to step up and report earnings. Two such companies — JA Solar (JASO) and Yingli Green Energy (YGE) — will face considerable scrutiny when they slip into the earnings confessional early next week after fellow solar module manufacturer Canadian Solar (CSIQ) missed Wall Street’s earnings expectations and provided weak guidance last week.
Here’s a look at a couple of potential options trades to make in solar stocks ahead of next week’s reports:
Solar Stocks: JA Solar (JASO)
Taking the lead for solar stocks next week, JA Solar will step up to release its fourth-quarter and fiscal 2013 reports ahead of the open on Monday, March 17. During its third-quarter report, JASO said that it anticipated shipping 500-550 MW of solar cells and modules during the quarter and upwardly revised its full-year shipments to 1.9-1.95 GW from previous expectations of 1.7-1.9 GW.
Currently, Wall Street is anticipating a quarterly loss of 3 cents per share from JA Solar, according to Zacks. That said, the company still could post a profit, as JA Solar has bested the consensus estimate in each of the prior three reporting periods by an average of 7 cents per share. Given declining global subsidies for solar power, and a hard winter across much of the U.S., JASO has its work cut out for it.
In fact, investors and analysts are quite skeptical of JA Solar at the moment. For instance, JASO stock has garnered only three ratings from the brokerage community, all of them “holds.” Elsewhere, short sellers have loaded up on JASO stock, with the number of shorted shares spiking 43.7% during the most recent period to 8.76 million. As a result, some 33% of JASO stock’s float is sold short.
Options traders also are less than enthused with JASO stock. In the March/April series of options, JASO has attracted 54,174 calls compared to 47,062 puts. The result is a put/call open interest ratio of 0.87 for the front two months of options. Peak call open interest totals 14,645 contracts at the March 12 strike, while open interest at the March 11 and 12 put strikes totals 11,327 and 10,097 contracts, respectively.
Despite this negativity, JASO stock has performed quite well since the beginning of the year, rising nearly 20% along support at its 10- and 20-day moving averages. The shares’ one spot of weakness so far in 2014 was contained in the $8.5 region by JASO’s 200-day MA. The shares now face resistance in the $11.50-$12 region.
Click to Enlarge Digging a bit deeper, we find that March implieds for JASO stock are pricing in a potential post-earnings move of about 12.45%. This places the upper bound near $12.37, just shy of JASO’s November highs, and the lower bound near $9.63, just above the stock’s 200-day moving average.
With the bar set low for JA Solar heading into the company’s quarterly report, there is the potential for an earnings surprise come Monday morning — especially considering the company’s recent history of topping Wall Street’s estimates. It’s a risky play, but those looking to bet on a potential upside surprise could be well rewarded.
JASO Trade: As such, traders might consider an April 10/12 bull call spread. This spread was last offered at 75 cents, or $75 per pair of contracts. Breakeven lies at $10.75, while a maximum profit of $1.25, or $125 per pair of contracts, is possible if JASO closes at or above $12 when April options expire.
Solar Stocks: Yingli Green Energy (YGE)
Yingli Green Energy is next on the solar stocks earnings scene, as the company steps up to the plate ahead of the open on Tuesday, March 18. YGE stock has been busy lately, as investors have reacted to CSIQ’s quarterly report and news that Yingli just announced a large 27.5 MW supply agreement with Israel. Look for this deal to have a potential impact on Yingli’s forward-looking statements.