Trina Solar: Let’s Go Contrarian with TLS Put Options

Trina Solar Limited (NYSE:TLS) with its market capitalization of $1.03B is an integrated solar-power products manufacturer based in China with a global distribution network covering Europe, North America and Asia. The Company produces standard monocrystalline photovoltaic (PV) modules ranging from 165 Watts to 185 Watts in power output and multicrystalline PV modules ranging from 215 Watts to 240 Watts in power output.

I wrote about trading Trina Solar Limited in November last year in a post in which I recommended buying TSL call options in anticipation of a breakout. I wrote that piece when the trading price of the stock was moving close to $11, which had hitherto been a key support and resistance level. However, the stock failed to breakout above $11 despite its bullish tendencies.

We Are Back to Reexamining Trina Solar Today

The shares of Trina Solar are back around that $11 level and I think it is expedient that we reexamine the stock for possibilities to profit from its options. The chart below shows how the shares of Trina Solar have traded in the last one year.

TSL Chart

From the chart above, you’ll observe that the stock has been trading in a flat channel for much of the last one year. You’ll also notice that $11 has been an important level for the stock as it formed an important support level in the last six months of 2014 while forming a resistance for Trina Solar in the last six months.

Shares of shares of Trina Solar have pullback down towards that $11 level after touching an intraday high of $12.34 on March 5. Shares of Trina Solar recorded losses of 0.36% in yesterday’s session to close at a trading price of $11.15.

Where is TSL Headed?

The decent fourth quarter results that Trina Solar reported last week provides an insight into where the company is headed. In the fourth quarter, Trina Solar reported quarterly revenue of $705M to beat the analysts’ consensus estimate of $690M. The company reported that it shipped 1099 MW worth of modules, to mark a year-over-year increase of 43%.

In addition, the company reported operating income of $30.5M in the fourth quarter to mark a 50% year-over-year improvement. However, the company reported non-GAAP EPS with quarterly EPS of $0.13 per share below the consensus estimate of $0.14 per share.

I am afraid for Trina Solar in that its market share might be eroded in the short to medium terms. An erosion of Trina Solar’s market share is in the books given the fact that the company plans to add .8GW of annual module capacity in 2015. The .8GW increase will bring Trina Solar’s full capacity to 4.8GW to mark a mere 20% increase, which seriously underperforms the increasing demand in the industry.

How to Trade TSL Options

We have tried the bullish case with Trina Solar and we practically lost money on that trade. Hence, it is only logical that we examine the bearish side of Trina Solar. I recommend buying TSA Put options. The TSL Jun 2015 10.000 put (TSL150619P00010000) looks attractive at an asking price of $0.70.

— Daily Option Alerts

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