Tuesday, January 17, 2012

Trina Solar (TSL) - Industry Pop, Firm Specific Risk, Earnings Vol

TSL is trading $10.04, up 4.9% with IV30™ down 1.7%. The LIVEVOL® Pro Summary is below.


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Trina Solar Limited (Trina Solar) is an integrated solar-power products manufacturer based in China with a global distribution network covering Europe, North America and Asia. The Company produces standard monocrystalline photovoltaic (PV) modules ranging from 165 Watts to 185 Watts in power output and multicrystalline PV modules ranging from 215 Watts to 240 Watts in power output. Trina sells and markets its products worldwide, including in a number of European countries, such as Germany, Spain and Italy.

While the stock is trading over $10 today, this was a $7 stock just a few days ago. Let’s look to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On the stock side, I’ve highlighted the recent pop. Also note the equity price meltdown over the last six months. In fact, the annual high for TSL is $31.08, reflecting the horrific performance of solar in general over the last year. The news that popped the stock recently surrounds some component price stability. Here’s a snippet from a news article from Reuters:

Solar stocks rallied sharply on Wednesday, regaining some of the ground lost during last year's steep sell-off, on signs that prices for solar energy components were stabilizing.

Chinese solar companies Hanwha SolarOne Co Ltd (HSOL.O), JinkoSolar Holding Co (JKS.N), JA Solar Holdings Co Ltd (JASO.O), Trina Solar Ltd (TSL.N), Suntech Power Holdings Co Ltd (STP.N) and Yingli Green Energy Holding Co Ltd (YGE.N) led the jump, with gains of 23 to 41 percent.

Most solar stocks had plummeted more than 60 percent last year as prices for the panels that turn sunlight into electricity fell sharply, cutting profit margins for the companies that manufacture them.

Investors on Wednesday, however, cheered figures showing a dramatic rise in new solar installations in Germany in the fourth quarter and higher prices on the industry's key raw material, polysilicon.

Source: Reuters via Yahoo! Finance. Solar stocks soar on strong Germany, improved prices.  Reporting by Matt Daily in New York and Nichola Groom in Los Angeles; Editing by Gerald E. McCormick, Gunna Dickson; Editing by Richard Chang

That news pushed TSL from $7.30 on 1-10-2012 to $9.43 the next day, or 29.2%. All told, TSL stock has popped from $7.08 to now over $10 in less than five trading days -- a 41.8% rise.

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

We can see a monotonic increase in vol from the back to the front, with the Jan expiry substantially elevated to both of the back months. My best guess is that the next earnings cycle for TSL will be in late Feb, likely (or possibly) after Feb expiry. In English, the next earnings cycle should be in the Mar options. As of right now, the Mar options are priced below the front two months (with respect to vol). Hmm…

Let’s turn to the Options Tab for completeness.

I wrote about this one for TheStreet, so no specific trade analysis here. We can see the front three expiries are priced to 115.33%, 97.66% and 95.20% for Jan, Feb and Mar, respectively. It’s important to keep in mind that Chinese stocks do hold a systematic risk associated with a less than transparent reporting body – aka the Chinese government. Further, there is a firm specific risk of rather large proportions as it’s not terribly uncommon for fraud allegations to rise and halt the stocks – potentially for several months.

Having said that, it’s the depressed Mar vol relative to the front months that caught my attention along with the rally in the industry on a broad scale and TSL stock more specifically.

This is trade analysis, not a recommendation.

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