Trina Solar: Take a Risky Shot on TSL Stock

Trina Solar Limited (ADR) (TSL) faces a mixed sentiment backdrop when the company steps into the earnings limelight ahead of the open on Monday.

Trina Solar TSL options earningsWall Street will be looking for a third-quarter profit of 15 cents per share from Trina, with revenue seen arriving at $645.7 million. That said, margins will be a major topic for TSL stock traders, with waning Chinese solar subsidies and rising U.S. import tariffs making an impact.

Diving into Trina Solar’s sentiment backdrop, we find that while the whispers are silent on the company’s third-quarter report, the brokerage community is still quite bullish on TSL stock. Specifically, the shares have attracted seven “buy” ratings, five “holds” and zero “sell” ratings. What’s more, the consensus 12-month price target for TSL arrives at $18 per share, representing a considerable premium of about 71% to yesterday’s close at $10.50.

Outside of the analyst community, short sellers are betting heavily against TSL stock. As of the most recent reporting period, some 18.9 million shares of Trina Solar stock were sold short, representing nearly 25% of the stock’s total float, or shares available for public trading.

If the company can muster a better-than-expected third-quarter report, it could put some pressure on these shorts, potentially creating a short-squeeze situation.

Turning to the options pits, speculative short-term traders are riding the fence when it comes to Trina Solar’s prospects. The stock’s December put/call open interest ratio arrives at a mediocre reading of 0.71. While call open interest outnumbers put open interest, I would hardly call these readings bullish.

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Overall, December option implieds for TSL stock are pricing in fairly large move of about 20% for the shares. This places the upper bound near $12.62, while the lower bound lies at $8.38.

A move in either direction would be technically significant for TSL stock, with a drop sending the stock to fresh 52-week lows, and a rally sending the shares back above their 50- and 200-day moving averages.

Options Trade on TSL Stock

Given the heavy volatility within the solar sector at the moment, TSL implieds may be a bit on the low side compared to historical levels (if you can believe it). A way to take advantage of this, if you’re game for a bit of risk, is to enter a strangle position; the Dec $10 straddle, for instance.

At last check, the Dec $10 straddle was offered at $1.66, or $166 per pair of contracts. There are two breakeven points for this trade, one on the upside at $11.66, and one on the downside at $8.34. In other words, for this trade to be profitable, TSL must move about 17% in either direction, as a close between these bounds will result in a total loss on the position.

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

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