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2 Pre-Earnings Options Trades on Solar Stocks: YGE, JASO

Deploy these bullish spreads within the next couple days

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For the record, Wall Street expects Yingli Green Energy to post a loss of 17 cents per share next week. Judging from Canadian Solar’s troubles and the fact that YGE has missed the consensus estimate by an average of 7 cents per share during the past four quarters, next week’s results could be much worse.

That said, Yingli offered some reassurance to investors last week when it said that it expects to report an 11% to 12% rise in panel shipments in the fourth quarter, up from prior guidance for a mid- to high-single-digit increase.

As with JA Solar, sentiment is quite bearish for YGE stock. Currently, Thomson/First Call reports that five of the eight analysts covering YGE stock rate it a “hold” or worse, compared to just three “buys.” Elsewhere, short interest rose 4.2% during the most recent reporting period, resulting in 24 million YGE shares, or 23% of the stock’s total float, sold short.

That said, option activity on YGE stock might be a sign that these short sellers are growing nervous. For instance, call open interest for the front two months totals 45,414 contracts, versus put open interest of 20,601 contracts. The result is a bullish put/call open interest ratio of 0.45, with calls more than doubling puts amid short-term options.

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Technically, YGE stock has been quite volatile lately. The shares peaked near $8.50 in October 2013, then hit a bottom near $4.30 in December. The stock has since narrowed this range to the $7.5 to $5.5 area, with YGE currently hovering near the mid-point at just below $6. The shares are above their 200-day moving average, but have recently dipped below their 50-day trendline.

Returning to options activity, March implieds for YGE stock are pricing in a potential post-earnings move of about 13.3%. This places the upper bound near $6.80, while the lower bound lies at $5.20.

Trading YGE stock ahead of earnings will not be for the faint of heart. Guidance will be the key, and with the Israel deal on the books, YGE could well offer up better guidance than other solar stocks. Such a move could spark a short-covering rally, potentially sending the shares back toward the upper end of their recent range.

YGE Trade: With this in mind, traders might want to consider an April 5/7 bull call spread. This spread was last offered at 92 cents, or $92 per pair of contracts. Breakeven lies at $5.92, while a maximum profit of $1.08, or $108 per pair of contracts, is possible if YGE closes at or above $7 when April options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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