CSIQ - Time Spread in Play

Discussion in 'Options' started by livevol_ophir, Nov 4, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CSIQ is trading $15.10, up 3.1% with IV30™ down 2.7%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/csiq.html">in the article</a>.

    <img src="http://www.livevolpro.com/help/images/blog/csiq_summary.gif" />

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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.

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

    The snapshot of the scan is included (<a href="http://livevol.blogspot.com/2010/11/csiq.html">in the article</a>) in case you want to build it yourself in Livevol Pro™.

    <img src="http://www.livevolpro.com/help/images/blog/calendar_spread_scan.gif" width="600" />

    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 (<a href="http://livevol.blogspot.com/2010/11/csiq.html">in the article</a>), 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.

    <img src="http://www.livevolpro.com/help/images/blog/csiq_skew_11-4-2010.gif" width="600" />

    Finally, let's look to the Options Tab (<a href="http://livevol.blogspot.com/2010/11/csiq.html">in the article</a>).

    <b>Potential Trades to Analyze</b>
    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: <b><a href="http://livevol.blogspot.com/2010/01/solarfun-solf-call-purchases-with.html">Understanding Option Skew</a></b>

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/11/csiq.html" >http://livevol.blogspot.com/2010/11/csiq.html</a>

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