You’re Not Too Late to Consider Canadian Solar (CSIQ) Options’ 25% Quick-Fire Yield

After struggling during the post-pandemic era, solar energy firms may be getting interesting again. Case in point is Canadian Solar (CSIQ), which saw shares shoot up over 10% on Monday. Ordinarily, though, following such a robust move, the subsequent price action can be disappointing. Nevertheless, speculators may have a chance of securing some quick income from CSIQ stock options.

Fundamentally, Canadian Solar may be finding its footing. Late last week, the company’s subsidiary, CSI Solar, recently inked a turnkey engineering, procurement and construction contract, per Zacks Equity Research. The terms of the agreement involves the delivery of a 98-megawatt (MW)/312 megawatt-hour (MWh) direct current Battery Energy Storage System (BESS) to the Huatacondo project, located in Chile.

Another factor to consider regarding the bullish case for CSIQ stock is the valuation. Right now, shares trade hands for 0.13X trailing-year revenue. It must be said that with analysts projecting sales of only $6.89 billion by year’s end — compared to last year’s $7.61 billion — that low valuation isn’t quite the win that it looks on paper.

Nevertheless, it must also be stated for fairness’ sake that analysts anticipate revenue of $8.17 billion on average for fiscal 2025. With developments like the Huatacondo project, there’s reason to believe that Canadian Solar could hit near the high end of targeted 2025 sales at $9.02 billion. If so, CSIQ stock would be grossly undervalued, something that other experts — including those from Barchart content partner The Motley Fool — have recognized.

If so, it’s time to take a look at CSIQ stock but perhaps not in the traditional, debit-based sense.

CSIQ Stock Rings Up Barchart’s Unusual Options Activity Screener

With Canadian Solar booming on Monday, it was no surprise that it ranked among the top highlights in Barchart’s unusual options volume screener. Specifically, total volume hit 32,167 contracts versus an open interest reading of 135,017 contracts. Monday’s volume represented a 603.1% lift from the trailing-month average metric.

Further, what piqued investors’ curiosity was the breakdown between calls and puts. The former category saw volume reach 29,038 contracts while the latter only landed at 3,129. This pairing yielded a put/call volume ratio of 0.11, thus seemingly favoring the bulls.

Options flow data — which focuses exclusively on big block transactions — wasn’t unfortunately available. Therefore, it’s difficult to truly tell what the sentiment was in the derivatives market among smart money traders. That said, CSIQ stock continued to move higher (albeit softly) in the afterhours session.

Despite the encouraging signs surrounding Canadian Solar, current investors who have yet to initiate a position may be hesitant to jump aboard. Not only did CSIQ stock soar on Monday, over the trailing month, the equity gained nearly 47%. Given the ebb and flow of the market, few may be willing to risk holding the bag.

Here’s the thing, though. While CSIQ stock may not have much legs left to drive decisively higher, it might not stumble downward. As stated earlier, the Chile project is a big deal. Further, as Canadian Solar progresses through the post-pandemic environment, its stock appears increasingly undervalued.

With that in mind, it may behoove investors to consider a credit-based options strategy. Rather than pay a premium for the privilege of holding a directional wager (debit-based approach), you may earn income by underwriting the risk that CSIQ stock won’t drop significantly lower.

A Cash-Secured Put Without the Cash

About the only way to generate income off a non-dividend paying security is to write (sell) put options. However, I’m not talking about cash-secured puts, which often require a lot of capital and present high risks for minimal reward. Rather, I’m talking about a bull put spread. By selling and buying puts of the same expiration date, you can create a limited-reward, limited-risk credit setup without requiring extensive capital.

One possible way to extract a maximum yield of 25% in less than two weeks is to consider the below trade for the options chain expiring Oct. 18:

• Sell the $16.50 put at a time-of-writing bid price of 55 cents.
• Buy the $15 put at an ask of 25 cents.
• The net credit (income) received of 30 cents (55 cents – 25 cents) represents the maximum reward possible.
• The most that you can lose in this trade is $1.20 (or $120 when applying the options multiplier of 100 shares).
• Breakeven lands at $16.20.

For every $1 of income earned, $4 is at risk — working out to a yield of 25%. Of course, it’s not a risk-free reward. However, CSIQ stock can still fall 5.55% to $16.50 and the position would still lead to the collection of the max reward (assuming intrinsic value at expiration).

Plus, shares enjoy about a 7.3% margin to the breakeven price. Even if you don’t think CSIQ stock can push substantively higher, if it can hold steady till Friday of next week, you can collect a 25% yield. That’s awfully tempting for the solar specialist, which is attracting attention anyways for its undervalued profile.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.