Markets

Options Update: Near-the-Money Puts Heat Up on Trina Solar Limited

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There's no argument that alternative-energy issue Trina Solar Limited ( TSL ) has struggled in 2010; at one point, the stock harbored a year-to-date deficit of nearly 50%. However, since finding a foothold atop its 20-month moving average, the equity has pared most of its losses, and is now attempting to climb back atop its 10-month trendline, currently lingering in the $22.50 neighborhood.

The options crowd appears to have little faith in TSL's ability to surmount its 10-month trendline, with put volume picking up steam. During the past two weeks, traders on the International Securities Exchange (ISE) have bought to open more puts than calls on the stock, as indicated by the equity's 10-day put/call volume ratio of 1.67. What's more, this reading ranks in the 87th annual percentile, implying that speculators on the ISE have rarely initiated bearish bets over bullish at a faster clip during the past year.

In fact, it's likely no coincidence that the September 22.50 put has been most popular, considering the $22.50 region is home to both the shares of TSL and the aforementioned moving average. During the past 10 sessions, the September 22.50 strike has seen roughly 3,000 puts added to open interest, with the strike now home to more than 4,300 puts outstanding.

Echoing that trend, TSL on Monday saw nearly 4,700 puts change hands - more than double its expected single-session put volume, and about four times the number of TSL calls exchanged. What's more, almost half of the action crossed at the September 22.50 strike, which saw close to 2,200 puts exchanged.

In light of the escalating preference for at-the-money puts, the stock's Schaeffer's put/call open interest ratio (SOIR) now rests at 1.47, implying that puts outnumber calls among options with less than three months to expiration. Compared to similar readings taken during the past year, the security's SOIR stands only four percentage points shy of an annual pessimistic peak. In other words, short-term options speculators have been more skeptically skewed toward TSL only 4% of the time during the past year.

Analysts, on the other hand, show a distinct bullish bias toward TSL. According to Zacks , the stock boasts 13 "strong buys" and three "buy" endorsements, compared to just one "hold" and a single "sell" rating. Plus, the consensus 12-month price target among the brokerage bunch rests at $28.43 - a premium of 28% to TSL's closing price of $22.20 on Monday, and in territory the security hasn't explored since the very beginning of the year.

Should the shares fail to surmount their 10-month moving average, the high hopes among the analyst crowd could come back to haunt the stock. An unwinding of optimism in the form of downgrades and/or price-target reductions could send the stock back for a retest of support at its 20-month trendline.

Follow Schaeffer's to the San Francisco MoneyShow Aug. 19 - 21, 2010! Click here for details, including a list of scheduled presentations and how to register.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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