It’s not that there aren’t plenty of companies reporting earnings next week. It’s just that you (and we) and many options trading investors haven’t heard of most of them. There are a few big names, though — FedEx (NYSE: FDX) and Nike (NYSE: NKE) head the list. But the pickings are pretty slim.
Nevertheless, we’ve found what we think is a solid put play on LDK Solar (NYSE: LDK). The solar energy technology provider reports on Thursday, March 17, after the close. Analyst earnings estimates don’t mean a whole lot for LDK, mainly because they are wildly inaccurate. In the last year, we’ve seen 72 cents (actual) vs. 43 cents (estimate), 36 cents vs. 22 cents, six cents vs. a penny, and three cents vs. 12 cents. You get the idea.
Of concern is the stock’s recent performance following earnings. In the past three quarters, the stock has lost an average of nearly 16% in the two weeks after reporting. Twice the stock was rising and once falling before earnings, so there’s no pattern of pre-earnings overbought/oversold to fall back on.
Currently the stock is in free-fall mode, having lost more than 20% in less than two weeks. The drop has pulled the shares below their 100-day moving average for the first time since August.
LDK Solar
Sentiment is also working against the stock. The put/call ratio is scraping along at an annual low, while the short-interest ratio is at the low end of its annual range. Eight of 14 analysts rate the stock a “buy,” showing some signs of skepticism. Overall, though, it’s a sentiment backdrop that is dangerous for a weakening stock, as the bulls could migrate to the other side.
Solar stocks always have their followers and dissenters, and LDK is no exception. But recent changes to subsidies in Italy have injected more uncertainty than normal into the solar market. With a recent poor record of post-earnings performance combined with a lousy price chart and seemingly misplaced optimism, earnings could intensify LDK’s current tenuous position. As such, we recommend buying the LDK April 12 Put for less than $1.50.
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