Chinese stocks were in focus on Monday, after a surprise rate hike out of Beijing. As a result, options players swarmed the shares of Yingli Green Energy (NYSE: YGE, Stock Forum), with speculators revealing a preference for front-month, out-of-the-money strikes.
By Monday’s closing bell, YGE had seen 9,700 calls cross the tape – more than seven times its expected daily call volume, and almost 18 times the number of YGE puts exchanged. The center of attention was the security’s January 2011 11-strike call, where roughly 9,200 contracts traded. About 68% of these calls traded closer to the ask price, and call open interest at the front-month strike skyrocketed by almost 6,000 contracts overnight, pointing to bullish buy-to-open activity. In fact, the 11 strike is now home to peak call open interest in the January series, with more than 16,700 contracts in residence.
However, Monday’s affinity for calls merely echoes the growing trend witnessed on the International Securities Exchange (ISE), where speculators during the past two weeks have bought to open more than 19 YGE calls for every put. What’s more, the stock’s 10-day ISE call/put volume ratio of 19.33 ranks in the 93rd annual percentile, implying that traders on the exchange have initiated bullish bets over bearish at a faster clip just 7% of the time during the past year.
On the other hand, though, a portion of the escalating affinity for out-of-the-money calls of late could be attributable to hedging activity among the shorts. Short interest on YGE advanced by 17.7% during just the most recent reporting period, and now accounts for 10% of the stock’s total available float.
Technically speaking, the shares of YGE have been less than impressive in 2010, to say the least. The security has given up more than 36% since the start of the year, and has underperformed the broader S&P 500 Index (SPX) by 32% during the past 60 sessions. Furthermore, the equity has surrendered roughly 28% since peaking near the $14 level in mid-October, led into the red beneath its descending 20-day moving average. Now, YGE is attempting to maintain its perch in double-digit territory, testing support at the $10 level, which has contained the majority of the stock’s pullbacks since the midway point of the year.
Despite the stock’s challenges on the charts, though, most analysts remain enamored of the equity. According to Zacks, YGE has earned 11 “buy” or better endorsements, compared to eight “holds” and only two “sell” or worse ratings. Likewise, the security’s average 12-month price target stands at $14.07, Thomson Reuters reports, implying expected upside of 39% to YGE’s closing price of $10.10 on Monday.
From a contrarian standpoint, the solar stock’s contrasting technical and sentiment set-ups could leave YGE vulnerable to additional selling pressure. Should the shares breach support in the round-number $10 region, a wave of downgrades and/or price-target cuts could stoke the bearish flames.
Disclosure: Andrea Kramer has no financial interest in any of the equities or products mentioned in this column.