It seems traders in ReneSola (SOL) are moving one step too slowly. Options traders loaded up on Oct 7.5 calls earlier this month, only to be greeted with last week’s news that SOL’s revenues would come in a little light based on weaker than expected pricing. SOL also announced a fresh offering of 14.4M in stock. By the close of trading that day (September 23), SOL actually finished up 2.6%. This seemed to suggest that market digested the news just fine.
Fast forward to today and SOL drops a mini-bomb that it increased the dilution to 15.5M shares and priced the new offering at $4.75 – a full 11% below yesterday’s close and a whopping 21% below the close of trading from the announcement of the offering. No wonder options traders are now loading up on Nov 5 puts (as of time edit, 2334 puts traded compared to an open interest of 504 – I will review again tomorrow to how much open interest changes). While I am of course disappointed my handful of Oct 7.5 calls will most likely expire worthless, I did not follow the market again on today’s move. Instead, I bought Nov 5 calls as SOL held around the $4.75 offering price. I suspect that traders rushed out to buy puts to protect and/or salvage positions. I also like that SOL held onto the bottom of the recent trading range that still looks like a (wide) consolidation pattern after the strong run-up that accelerated in June (see earlier post for the chart).
The experience with SOL once again proves out the conclusions I made earlier on trying to interpret trading volume in options. Traders cannot simply blindly ride the coattails of heavy volume and must bring some additional information and/or technical analysis to the equation to have any chance to distinguish between a popular party and a mindless stampede…and even then, buyer beware!
Be careful out there!
Full disclosure: long SOL calls
Hi, Dr. Duru,
I bought in SOL 5 minutes before the announcement of 15.5M share dilution:-(. Well, the damage is done :-). Where do you think SOL will trend into the cold season?
Thanks in advance,
Ngoc
Hi Ngoc,
I definitely feel for you! As I intimated, a LOT of people got caught on the wrong side of the SOL trade.
IF, and this is a big IF, SOL can hold those June lows, it should eventually resume an upward trend. But if the sellers press on from here, it cold be a long, frozen cold season for SOL…!
Also, management has a lot of explaining to do in the next conference call. I would watch this one very carefully…and track how the market reacts.