Sponsored By:

Canadian Solar (CSIQ)

January 15, 2009

Dear Fellow Options Traders,

Will the sun come out tomorrow? Canadian Solar Inc. (CSIQ), maker of solar cell and module products, hopes so.

With oil prices collapsing, this stock has fallen from about $52 per share last summer to $5. The company has net cash of about $1.50. Its cash burn is light, so it will not need capital in the near-term.

There are nine estimates for fiscal year 2009. The range is from $1.72 to a loss of $2.31. The mean estimate is 40 cents. If you exclude the outlier low estimate, the mean estimate would be about 80 cents. However, its seasonal pattern is for a very week first quarter will be very weak, as its business picks up in the second quarter.

Since the lending market shut down in the fourth quarter 2008, module prices have fallen from $4.10 to $2.80. Silicon prices are down about 60% in the past quarter.

In Germany, the feed-in-tariff, or the rate German utilities pay for solar modules, has remained unchanged. In other words, with silicon costs down and revenues the same, German solar projects are becoming more attractive. More than half of CSIQ's product is expected to be sold in Germany.

To establish a position to profit from this, we recommend using a spread order to buy the CSIQ July 5 Calls (GQAGA) for approximately $1.85 and simultaneously sell an equal number of the CSIQ July 10 Calls (GQAGB) for approximately 60 cents, for a net debit of $1.25 or less.

Remember, the prices you pay for the individual legs of the spread trade don't matter provided you don't pay more than $1.25 to enter the trade.

Buying the CSIQ July 5-10 bull-call spread is a bet that the lending markets will open again before summer and new project financing will become viable. If this is the case, buyers will return to financing 20-year solar projects with an IRR of about 7%.

Have a great day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader