CSIQ Analysis

Canadian Solar Inc. (CSIQ)

CSIQ publishes earnings on Monday before the opening bell.

I shall use options that trade for the last time 14 days hence, on Aug. 25.

Implied volatility stands at 67%, which is 4.3 times the VIX, a measure of the volatility of the S&P 500 index.

CSIQ’s IV stands in the 55th percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $16.73

Premium: $1.40 Expire OTM  
CSIQ-iron fly Strike Odds Delta
Long 20.50 87.9% 16
Break-even 18.40 ~76% ~29
Short 17.00 56.5% 49
Short 17.00 43.5% 51
Break-even 14.90 ~71% ~23
Long 13.50 82.1% 13

The premium is 40% of the width of the position’s wings.

The risk/reward ratio is 1.5:1.

Decision for My Account

Note the high than usual delta for the long legs of both the puts and calls. I normally aim for a delta of 10 or below.

What we’re seeing here is a sign of an options grid constrained by liquidity. And indeed that is the case. Call strikes above $20.50 and put strikes below $13.50 have no bids. I won’t try to play bidless strikes.

The liquidity constraints translate into a lower premium than I like — 40% of width rather than the 50% or greater that I aim for — and a higher risk/reward ratio — 1.5%, well above the 1.2% that is my maximum preference.

For those reasons, I am passing on this trade.

By Tim Bovee, Portland, Oregon, Aug. 11, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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