Wednesday, January 13, 2010

"Schaeffer's Tool Box: Bullish Prospects for Trina Solar Limited" (TSL)

The stock looks to close near $59.11 down 49 cents.
From Schaeffer's Investment Research:

Strong price action and investor pessimism make Trina Solar calls quite attractive

Trina Solar Limited (TSL: View sentiment for TSLsentiment, chart, options) has enjoyed a pretty good run recently, but options traders remain doubtful about the solar issue. Could this be a bullish contrarian play?

One of the easiest ways to find a potential bullish trade using the Schaeffer's stock screener is via the "Stocks with a high put/call ratio" filter option. By selecting this option, the filter will return only those securities with strong price action and an unusually high degree of put open interest relative to call open interest. With the basics out of the way, there are a few more settings to tweak. Below are my personal favorites:

  • Stocks with a high put/call ratio
  • A minimum stock price of $10 per share
  • Minimum put & call open interest of 10,000 contracts
  • Minimum average daily stock volume of 100,000
  • Trading above its 20-day moving average
  • Stocks near an annual high
  • Total analyst rankings greater than 10

For a more in-depth rundown of the Schaeffer's stock screener, you might want to start by reading this primer.

Stock Selection Via Sentiment

Sentiment indicators for filter results

After sorting the results in descending order according to their 60-day relative-strength versus the S&P 500 Index (SPX), we arrive at several interesting prospects. Solar power concern Trina Solar Limited (TSL) rises to the top of today's results, having attracted quite a bit of pessimism from investors, despite outperforming the SPX by more than 71% on a relative-strength basis during the past 60 days.

Specifically, the stock's SOIR of 1.61 indicates that puts easily outnumber calls among near-term options. What's more, options traders have been more negative toward TSL only 2% of the time during the past year, as the security's SOIR ranks in the 98th percentile of its annual range....MORE