Weekend Trader Series
September 18, 2022
Open Positions Update
- The Cal-Maine Foods (CALM) November 18, 2022, 50-strike call was closed after hitting its target profit of +100%. If you have not already done so, please close out of your CALM position at the earliest opportunity.
- Close the Peabody Energy (BTU) December 16, 2022, 23-strike call on Monday, September 19. Close the position at a limit price within the range of the current market price when you place the order.
- Close the Kroger (KR) January 20, 2023, 49-strike call on Monday, September 19. Close the position at a limit price within the range of the current market price when you place the order.
The following is this week's recommendation:
Canadian Solar (CSIQ)Place a limit order to buy the Canadian Solar (CSIQ) January 20, 2023 34-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, September 16, this option was offered at $9.70. CSIQ closed at $40.14 on Friday, September 16.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, October 17, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of Canadian Solar (CSIQ) recently pulled back to their 50-day moving average, which coincides with the equity's August lows and April highs. What’s more, this trendline was supportive of an explosive rally in 2020, and acted as resistance in March 2021 following a move below it. Further, the security staged a late-July breakout above a trendline connecting lower highs since April 2021, and is now up more than 28% year-to-date. CSIQ is also trading above the $39.75 level, which is three times its 2020 closing low, making now an ideal time to speculate on the stock’s next move higher.
Analysts are mostly pessimistic towards the equity, leaving plenty of room for upgrades going forward that could push shares higher. In fact, six of the nine firms in coverage call CSIQ a tepid “hold” or worse, while only three say “buy” or better. Meanwhile, shorts are in covering mode, but the 2.82 million shares sold short are 70% above the stock’s July 2021 lows.
It's also worth noting the stock’s 14-day Relative Strength Index (RSI) sits at 30.9 – no longer in “overbought” territory, and back within a level that preceded its late-July breakout.
A shift in sentiment in the options pits could create additional tailwinds for CSIQ, given its Schaeffer's put/call open interest ratio (SOIR) of 0.96 sits higher than 95% of annual readings. In simpler terms, short-term options traders have rarely been more put-biased.
Additionally, the equity has frequently exceeded option traders' volatility expectations in the last year. This is per Canadian Solar stock’s Schaeffer's Volatility Scorecard (SVS), which sits at 70 out of 100. Our recommended January 20, 2023 34-strike call has a leverage ratio of 3.1, and will double in value on a 32.8% rise in the underlying equity.
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