During earnings season it seems most investors are invariably interested in outsized and, typically, bullishly-oriented moves to materialize in the stocks we hold dear. Sometimes, as was the case with Canadian Solar ( CSIQ) in Tuesday''s session, those types of wagers pan out for the bulls. However, that hasn''t been the case by and large this earnings season. For the Q1 reporting season, most moves have been much less severe and the options premiums priced such as to more than compensate those traders that make use of selling premium or at least hedge their directional biases with spreads.

Last week, this column wrote about Canadian Solar. A picture of mixed evidence, but spiced with a bullish bias was offered. The options were also approached as premiums were viewed as being approachable from an earnings-induced ''volatility rush'' standpoint. And as it turned out, non-directional strategies such as the May 25 / 35 strangle worked quite well, although not as strong a performance as the perma-bulls enjoyed.

In front of the earnings release, implieds in CSIQ continued to balloon at a faster clip than time decay. For its part, the strangle witnessed gains of .65 as it went from 1.35 to 2.00. Again, traders would have done nice to have held through the report in this one instance, but the more sound trade was to have exited either in full or have removed a large enough piece as to reduce the risk associated with the then pending volatility crush.

Figure 1: Renesola ( SOL) Weekly

Next up for many solar fans is tomorrow morning's report out of the recently IPO'ed Renesola ( SOL). For this market observer, it''s another mixed bag as far as the stock is concerned. In this instance, the fundamentals look much stronger than Canadian''s did in front of its report. However, the price run of shares has put the stock into the category of being prone to high expectations. Any less-than-stellar earnings or guidance could arguably lend itself to some very quick profit-taking. If we take a look at the weekly chart above, that point is driven home.

Six weeks back and where the chart annotates the ''weekly handle," this corner actually wrote up some bullish analysis about the up and coming solar play as part of the Midday Action column. With shares now more than 50% higher, some of that potential price discovery has been unearthed. In conjunction with an aggressive move along the upper band and an eight-week cycle from its lows, the expectation is for a pullback. It might not happen of course. But, were I looking to position in front of the earnings event, the technicals in of themselves, would prevent outright bullish positioning.

Checking out the options board and a similar story to Canadian''s, wherein premiums have exploded over the past few sessions leading into the report, is apparent. In this instance, looking back five business days and shares at 17.05, the strangle as represented by the May 15 / 20 was trading around .60 to .65 with implieds skewed towards the out-of-the money calls near 120%.

Figure 2: Renesola ( SOL) Call & Put Volume

By Tuesday''s close, a combination of a generous rally and volatility lift into the earnings report had the strangle closing at 3.00 as shares closed at 21.67 and implieds soared to 260%. That being said and relating those figures to levels from just five days prior, it''s hopefully even easier to appreciate that expectations are much more in tune with the "priced for perfection" variety than not. When we also look at another expression of that conviction via the contract graph shown above and its ramp up in call buying, "Caveat Emptor" at all levels comes to mind. 

Chris Tyler 
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler''s Forum 
 
The information offered here is based upon Christopher Tyler''s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.  

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