Thursday, November 4, 2010

Canadian Solar (CSIQ) - Time Spread in Play

CSIQ is trading $15.10, up 3.1% with IV30™ down 2.7%. The LIVEVOL™ Pro Summary is below.


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CSIQ designs, develops, manufactures and sells solar cell and module products that convert sunlight into electricity for a variety of uses.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line). I have highlighted the vol diff between the Nov/Dec 13/17 strangle.

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
1. Sell the Nov 13/17 strangle @ $0.45 and buy the Dec 13/17 strangle for $1.15 for a net debit of $0.70. This sells ~74 vol and purchases ~64 vol.

2. Adding a delta bet to this (hey it's a solar company and those can't go down, right?...), buy the Dec 13/16 strangle instead of the 13/17. This is more expensive (by about $0.30) but gets you some long deltas. A step further, don't cover the Nov 13 put sale. i.e. Sell the Nov 13/17 strangle and buy the Dec 16 calls... risky for some deltas.

3. If you're more of a bear, do the opposite of 2; uncovered calls.

Remember, in general solar companies due tend to exhibit reverse skew. I wrote about this phenomenon here: Understanding Option Skew.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Why use strangles instead of straddles?

  2. I liked the vol diff in the strangles a bit more, but no reason other than that.