Wednesday, June 15, 2011

Trina Solar (TSL) - Expensive Gamma in the Front Month

TSL is trading $20.61, down 0.8% with IV30™ up 2.6% as of ~11am EST. The Livevol® Pro Summary is included below.


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Trina Solar Limited (Trina) is an integrated solar-power products manufacturer based in China with a global distribution network covering Europe, North America and Asia. It produces standard monocrystalline photovoltaic (PV) modules ranging from 165 watts (W), to 240 W in power output and multicrystalline PV modules ranging from 215 W to 240 W in power output.

I wrote about this one for (OptionsProfits), so no specific trade analysis -- but this is one that could be a cool trade to examine for the next few days.

This is another one that came up in the custom scan finding some juicy front month options relative to the second, with just a few days to go to expiration. The scan details are included below.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

Normally I put a little note as to the reasoning of the scan, but this close to expo it’s really simple. I’m looking for a three day trade to sell gamma for a rich premium and cover with the back.

Let’s turn to the Skew Tab and examine the month-to-month (and line-by-line) vols.

As expected, we can see the front month is elevated to the back and there’s a parabolic shape to the Jun options.

Now we can turn to the Charts Tab (below) to see the vol level we’re purchasing (as this trade is long vega). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

The stock has been quite volatile of late pushing HV20 to nearly 64. HV180 (the long-term realized vol trend) is 51.67. With Jul vol at ~55, a calendar spread doesn’t buy cheap vol, but it doesn’t look really expensive either. In English, this feels like “fair-ish” vol to own for a few days.

Let’s look to the Options Tab for completeness.

Keep in mind, in examining a three day trade: This is a Chinese solar company – so any trade does carry a substantial risk of loss – even in the short-term.

This is trade analysis, not a recommendation.

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