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A Pre-Earnings Options Preview for LDK Solar Co., Ltd

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LDK will unveil its second-quarter results before the market opens on Tuesday.

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LDK Solar Co., Ltd (ADR) (NYSE:LDK) is slated to step into the earnings confessional early next week, and option players are hoping the alternative energy source performs as well as sector peer Trina Solar Limited (ADR) (NYSE:TSL), which issued a positive earnings surprise on Tuesday morning. In fact, LDK speculators have been upping the bullish ante at a rapid-fire rate. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio has soared to 46.50 from its Aug. 1 reading of 1.03. What's more, the current ratio ranks in the 93rd percentile of its annual range, meaning calls have been bought to open over puts with more rapidity just 7% of the time within the past year.

Not surprisingly, the stock's Schaeffer's put/call open interest ratio (SOIR) sits at 0.49. Not only does this show that call open interest more than doubles put open interest in the front three-months' series of options, but it ranks lower than 95% of similar readings taken during the last 12 months. Simply stated, short-term speculators have rarely been more call-heavy toward LDK throughout the previous 52 weeks.

Part of this call-skewed trend could be due in part to the stock's present price. Remember, the the maximum potential reward for a long put is restricted to the strike price minus the premium paid. With LDK currently hovering near $1.69, there is limited profit potential for implementing a put-buying strategy.

Outside of the options pits, sentiment toward LDK is lukewarm. Only one analyst is covering the stock, and he maintains a tepid "hold" rating. Meanwhile, although short interest rose 4.1% in the most recent reporting period, it still only accounts for 4.9% of the stock's available float.

LDK Solar's history at the earnings plate leaves much to be desired. The company has fallen short of analysts' bottom-line expectations in seven of the last eight quarters. Plus, the stock averages a respective loss of 1.9% and 1.2% in the day and week following its report. When LDK Solar reports earnings ahead of next Tuesday's open, Wall Street is expecting the company to record a second-quarter loss of 92 cents per share -- a $1.08 improvement from its year-ago results.

This article by Karee Venema was originally published on Schaeffer's Investment Research.

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No positions in stocks mentioned.
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