Options Update: Can JA Solar Eclipse Long-Term Resistance? Examining the widespread pessimism plaguing the outperformer by Andrea Kramer (akramer@sir-inc.com) 7/8/2010 3:00 PM
: JASO stocks options
After capitalizing on a round of merger-and-acquisition news yesterday, the shares of JA Solar Holdings Co., Ltd. (JASO) have continued their run higher after the firm extended a supply agreement with Solar-Fabrik AG. More specifically, China-based JA Solar said it will supply about 70 megawatts of solar products to its German peer through the end of 2010, continuing a partnership developed in 2008.
However, despite the positive developments of late, put players have pounced on JASO today, continuing a growing trend on the International Securities Exchange (ISE). During the past two weeks, traders on the ISE have bought to open more JASO puts than calls, as indicated by the equity's 10-day put/call volume ratio of 1.33. What's more, this ratio ranks in the 95th annual percentile, implying that traders on the exchange have initiated bearish bets over bullish at a faster pace only 5% of the time during the past year.
Further reflecting the escalating affinity for JASO puts, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.37 stands higher than 96% of all others taken during the past year. In other words, short-term options traders have been more pessimistically positioned toward JASO only 4% of the time during the past 12 months.
As alluded to earlier, the put-heavy activity of late has extended into today's session, as JASO has already seen roughly 5,600 puts change hands – more than 12 times its expected daily volume of fewer than 500 puts. Digging deeper into the data, we find that the security's near-the-money September 5 put has attracted the bulk of the attention, with almost 5,100 contracts traded.
However, nearly all of the puts crossed the tape between the bid and ask prices, making it difficult to determine whether they were sold or purchased. Plus, the September 5 strike is already home to peak open interest among all strikes, with more than 19,000 puts outstanding. In other words, with open interest exceeding intraday put volume, we also can't yet discern how much of today's activity – if any – will translate into new positions.
If today's volume at the September 5 put does, in fact, result in a plethora of newly purchased pessimistic positions, the put players will have plenty of company on JASO's bearish bandwagon. Similar to the sentiment among the options crowd, the brokerage bunch is also wary of the stock. According to Zacks, only half of the 18 ranking analysts consider JASO worthy of a "buy" or better endorsement.
In the same skeptical vein, short sellers have also ramped up their bearish bets on the stock. During just the past month, short interest on the equity skyrocketed by 70%, and now accounts for more than 15% of JASO's total available float. In fact, at the stock's average daily trading volume, it would take the shorts about three sessions to repurchase their pessimistic positions.
So, is the Street's lack of confidence in JASO warranted? On one hand, the stock has been a broad-market standout lately, outpacing the S&P 500 Index (SPX) by 28% during the past 20 sessions. Furthermore, the equity has rallied nearly 30% since exploring the $4.50 neighborhood about a month ago.
From a longer-term perspective, though, the bulls could be waiting on the sidelines until JASO proves it can topple a familiar level of resistance. More specifically, the shares have trended somewhat sideways during the past year, meandering between support at their 10-month and 20-month moving averages and resistance in the overhead $6-to-$6.50 region. Until the solar concern can conquer this long-term foe on the charts, the Street could continue its skeptically skewed wait-and-see approach.
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