Canadian Solar Inc. (NASDAQ:CSIQ) will report third-quarter earnings before Thursday's opening bell. Given how sector peer First Solar (FSLR)rallied in late October after earnings, the solar company's earnings reaction is highly anticipated. Here's a closer look at CSIQ stock's performance lately, and how options traders are positioning themselves ahead of earnings.
Although the Guggenheim Solar ETF (TAN) has historically been one of the worst sectors in November, Canadian Solar stock reached an annual high of $19.09 yesterday. This is just more of the same for the security, which broke out above the $18 level last week -- an area that had served as stiff ceiling since early August. The equity has tacked on 55% in 2017, and at last check was up 0.5% to trade at $18.85.
Historically speaking, the solar stock tends to struggle in the session after the company's earnings report, finishing lower in six out of the last eight earnings reports. However, when the reaction was positive in May and August 2016, the shares skyrocketed by double-digit percentage points.
Overall, the security has averaged a move of 8.5% regardless of direction in the session after the last eight earnings reports. For Thursday's trading, the options market is pricing in a bigger-than-usual 13.1% post-earning swing in either direction, based on at-the-money implied volatility data.
Short sellers are hoping this action resolves to the downside -- although a move to the upside could catch these bearish bettors off guard. While short interest decreased 8.6% during the last two reporting periods, the 4.9 million shares sold short still represents a healthy 11% of CSIQ's total available float. At the equity's average daily trading volume, it would take more than a week to buy back these bearish bets. This represents a major source of buying power for CSIQ, should shorts continue to cover their positions.
In Canadian Solar's options pits, meanwhile, speculators have taken a more neutral-to-bullish tone in recent weeks. Specifically, the November 18 put has seen the biggest rise in open interest over the past two weeks, and data from Trade-Alert points to significant sell-to-open activity. If this is the case, put writers either expect CSIQ stock to hold above newfound support at $18 through expiration at next Friday's close, or they're hoping to profit on a post-earnings volatility crush.