"Although last year could have been called the year of the solar stock, the sector was also one of the hardest hit in the first quarter of 2008," notes Jocelynn Drake, with Schaeffer's Research.
She explains, "Undoubtedly, a number of investors got burned on this group, but it may be time to jump back in as these stocks rebound from their lows." Here, she looks at LDK Solar (NYSE: LDK) and Evergreen Solar (NASDAQ: ESLR).
"One stock skyrocketing within the sector is LDK Solar, as it recently announced no fewer than 3 new contracts. The firm not only signed a 10-year agreement with Moser Baer, but it will also provide Silcio S.A. with 50 megawatts (MW) of silicon wafers during the next 6 years, concluding in 2013.
"The other supply pact involves the delivery of 33 MW of silicon wafer to Arise Corporation of Canada between 2008 and 2011. This positive news has helped to breathe new life into this group. The shares of LDK have bounced back from support in the 20 region, gaining more than 44% from their March lows.
"However, this technical strength has been answered with growing skepticism among options players as they attempt to call a top to the stock's uptrend.
"The Schaeffer's put/call open interest ratio (which compares put open interest against call open interest for options with less than 3 months until expiration) has increased. What's more, LDK could benefit from upgrades from Wall Street.
"According to Zacks, 4 of the 6 analyst ratings for LDK are a 'hold' or worse. Any upgrades and/or fresh initiations based on the company's positive news could boost the shares even higher. The May or June 35 call would allow a trader to take advantage of a rally in the shares.
"Another solar stock that is trying to bounce back from its lows is Evergreen Solar. The equity has rallied from its March 20 low of $7.52, gaining more than 39%. In fact, the shares have climbed back above the 10 level and finished their first week above their 10-week trendline since early January.
"Much like LDK Solar, Wall Street has become quite skeptical of Evergreen. Zacks reports that the company has been awarded 7 'buy' ratings compared to 10 'holds' and 1 'strong sell.' This configuration leaves the door wide open for potential upgrades.
"Meanwhile, options players are starting to jump on the stock's bandwagon. The security's put/call open interest ratio has steadily declined. This decrease shows that investors have started to load up on optimistic call positions.
"However, the current reading is still higher than 93% of all those taken during the past year – far from an optimistic extreme. As more of the former bears jump on the stock, Evergreen will be pushed higher by the fresh buying power. To ride this rally higher, options players should consider the stock's May or June 10 call."
