Wednesday, December 23, 2009

Schaeffer's Research on Options Activity in ReneSola, LDK Solar and Solarfun (SOL; LDK; SOLF)

Three from Schaeffer's this week:


Near-Term Traders Bet on a Breach of Resistance for ReneSola Ltd. (SOL)

Short-term option traders are betting on additional upside for the shares of ReneSola Ltd. (SOL: View sentiment for SOLsentiment, chart, options), as indicated by today's surge in front-month call activity. So far today, the China-based manufacturer of solar wafers has seen more than 1,500 calls cross the tape – nearly tripling the norm – with more than half of the calls changing hands at the ask price, suggesting they were likely bought.

The influx in call buying echoes the recent trend on the International Securities Exchange (ISE), where speculators during the past couple of weeks have bought to open more than 69 times as many SOL calls as puts. What's more, the stock's 10-day call/put volume ratio of 69.42 ranks in the 82nd annual percentile, indicating that traders on the ISE have initiated bullish positions at a faster pace only 18% of the time during the past 12 months.

Garnering the most attention today has been the at-the-money January 2010 5 strike, which has seen more than 1,200 calls exchanged – 51% of which have traded at the ask price. The 5 strike is already home to peak call open interest in the newly front-month series, with about 5,750 contracts in residence. However, this heavy accumulation of call open interest could actually act as an options-related speed bump on the charts.

Technically speaking, SOL has been a broad-market standout lately, outpacing the S&P 500 Index (SPX) by 17% during the past 20 sessions. However, the looming $5 neighborhood could pose a threat in the near term for a couple of different reasons. First, the aforementioned call open interest at the January 5 strike could act as options-related resistance in the short term. Plus, the $5 - $5.20 region played the part of support from July to late September 2009, and could now switch roles to act as a technical ceiling....MORE


Option Player Predicts Long-Term Trajectory for LDK Solar Co., Ltd. (LDK)

Using January 2011 options to initiate a short strangle on the solar concern

The shares of LDK Solar Co., Ltd. (LDK: View sentiment for LDKsentiment, chart, options) surrendered almost 13% on Friday, after the Chinese solar concern slashed the size of its stock offering, which it priced at an 11% discount to the shares' closing price on Thursday. As such, it was no surprise that bearish bettors bombarded LDK on Friday, with single-session put volume skyrocketing to more than 4.5 times the norm.

On that same note, put traders have pummeled the stock today, too, with more than 18,000 puts traded so far. Interestingly enough, most of the activity is attributable to some very long-term option speculators, as the January 2011 2.50 strike has seen roughly 12,600 puts change hands. However, it was some activity surrounding the January 2011 5 put and 7.50-strike call that piqued my curiosity today.

Earlier this morning, a block of 175 January 2011 5 puts crossed the tape for the bid price of $1.52, implying they were likely sold. At the same time, an equal amount of January 2011 7.50 calls traded for the bid price of $1.58, suggesting they were also written. As such, it appears one option player is attempting to pinpoint LDK's long-term trajectory by employing a short strangle on the stock.

Since both the puts and calls were sold, the strangle was initiated for a net credit of $3.10. By implementing this strategy, the investor's primary objective is for the shares of LDK to finish between the 5 and 7.50 strikes when January 2011 options expire, rendering all of the options worthless and allowing him to pocket the initial credit – which represents his maximum potential reward....MORE


Front-Month Call Players Flock to Solarfun Power Holdings Co., Ltd. (SOLF)

Call buying heats up on Solarfun Power Holdings Co., Ltd. (SOLF)

Solarfun Power Holdings Co., Ltd. (SOLF: View sentiment for SOLFsentiment, chart, options) attracted a slew of front-month call traders on Monday, with single-session volume nearly quintupling the norm. More specifically, the Chinese maker of photovoltaic cells saw roughly 10,400 calls cross the tape, compared to its average daily volume of about 1,250 contracts.

Most active by far was the equity's at-the-money January 2010 7.50 call, which saw nearly 4,500 contracts change hands – 30% of which traded at the ask price, implying they were likely bought. What's more, call open interest jumped from fewer than 3,250 to more than 5,830 contracts overnight, making the 7.50 strike the new home to peak call open interest in the front-month series. Taking runner-up is the out-of-the-money 10 strike, with almost 5,100 contracts outstanding.

However, digging deeper into SOLF's sentiment backdrop reveals that yesterday's bullish bias was by no means a single-session phenomenon. During the past couple of weeks, traders on the International Securities Exchange (ISE) have bought to open a whopping 142 times as many SOLF calls as puts. In fact, the stock's 10-day call/put volume ratio of 141.84 stands only two percentage points shy of an annual optimistic acme....MORE