Chris Tyler, Optionetics.com
January 24, 2011
Shares of First Solar (FSLR) have continued to sizzle higher this afternoon following a morning boost from Goldman Sachs with heavier-than-normal option activity in tow. Analysts put the NASDAQ 100 component and manufacturer of solar modules onto its influential Conviction Buy List.
Goldman expects solar-panel manufacturers “will avoid a hard landing” in 2011 and should see growth of 13%. Factors behind the raise include an expected increase in photovoltaic generator demand fueled by lower panel costs, government clean power mandates and companies installing panels according to a Bloomberg report.
The next catalyst for shares looks to be earnings scheduled for the evening of February 17 and immediately in front of the February contract’s expiration. Technically, Monday’s move has produced more technical momentum for shares of FSLR, as well as additional relative strength leadership for a group (LDK, TSL, CSIQ, JKS and STP) which saw a mixed and none-too-impressive performance last year.
Figure 1: First Solar (FSLR) Weekly Cup B/O
For its part, FSLR has busted above its prior highs set in October. As the price action trailing those highs corrected shares by a bit more than 20%, today’s breakout is appears to be part of a first stage cup-shaped base pattern. In general, fewer bases are considered sturdier as uncorrected late base counts open themselves up to long absent profit-taking.
Earlier in the session and as first reported in Monday’s Wall Street’s Lunch Option, option traders were concentrating their efforts in the February 165 call and March 160 call. Order flow was likely focused on long outrights, diagonals or rolls but larger open interest, small prints ultimately made the action hard to assess with any strong authority other than net premium buying in our estimation.
In the second half, action in the February 155 call and the current at-the-money strike is seeing the heaviest interest with volume approaching 3,700 contracts traded. Once again, sleuthing for prints didn’t reveal any real institutional interest but mostly the work of smaller size traders—not that there’s anything wrong with that.
Figure 2: First Solar (FSLR) 1x February 155 Call
Unlike the former strikes, open interest of 1,700 has been easily surpassed by today’s activity. In conjunction with the fore-mentioned bid in premiums we can assume opening buy side interest as likely dominating today’s order flow. However, I strongly suspect with a range of four points from lows of $4.10 to a high of $8.20 per contract, more than a few initiating buyers have already hedged with other options or partially exited.
Shown above to illustrate current risk in FSLR’s most active is a long one lot position. Priced at $7.40 per contract and shares roughly 2% above its technical breakout levels, a trader looking for a double in premium will need, at most, a move of 8% by expiration. Prior to that day, the trader could realize similar gains with a slightly lesser move in shares due to the help of extrinsic value which will find some likely assistance from earnings and what amounts to as a slightly early expiration exercise, for better or worse, for traders still holding onto the bull.
Senior Staff Writer & Options Strategist
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