Canadian Solar: Stock Rises on Industry News; Vol Continues to Climb Into Earnings

Canadian Solar Inc. (CSIQ) designs, develops, manufactures and sells solar cell and solar module products that convert sunlight into electricity for a variety of uses. The Company conducts all of its manufacturing operations in China.

This is an order flow note along with some interesting vol. First, the news:

"Solar stocks are surging this morning after the first two Q4 reports (SPWR reported, STP preannounced) were better than expected (feared). " -- Source: Provided by Briefing.com

So, this is an industry wide phenomenon. I've decided to look at a smaller player. CSIQ has traded over 10,000 contracts on total daily average option volume of just 717. Calls have traded on a 25.6:1 ratio to puts. The action is in the Mar 4 calls. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). Based on the orders and the vol move, these feel like substantially purchases, though there is some ambiguity. When looking down the entire option chain for CSIQ, I don't see any OI larger than 3,200, and that's in the Feb options expiring today. In other words, this flow is quite large for CSIQ.



The Skew Tab snap (below) illustrates the vols by strike by month.



We can see a monotonic increase in vol from the back to the front. We project CSIQ will have earnings in the Mar expiry cycle, so that elevated vol is reflecting not just the news today, but also the news "to come."

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



Here's where it gets interesting. CSIQ was trading $7.87 in the middle of August. It hit as low as $2.07 in the Fall. Now it's trading nearly double that price. On the vol side, the IV30™ peeked at over 144% in Oct, then dropped to ~90% as recently as 2-6-2012. Since then it's followed essentially straight line up to over 120%.  Given the recent move in the underlying and with earnings approaching, it wouldn't surprise me if the IV30™ pushed through the annual high by early Mar.

This is trade analysis, not a recommendation.