First Solar, Inc.
) is slated to unveil its quarterly earnings report after tonight's
close, and one group of speculators is betting on an earnings miss.
FSLR's May 50 put is the most active strike today, where 2,574
contracts have traded for a volume-weighted average price (VWAP) of
$5.12. Nearly all of these positions have gone off at the ask
price, implied volatility was last seen 7.7 percentage points
higher, and only 339 contracts make up open interest. In other
words, it's safe to assume that new bearish positions are being
Given that FSLR was trading at $46.94 this morning at 11:00 a.m.
EDT, these puts are currently in the money. However, in order for
the speculators to turn a profit, the stock must fall below
breakeven at $44.88 (strike price less the VWAP) by the close on
Friday, May 17 -- when front-month options expire. Risk, meanwhile,
is limited to the initial cash outlay. With implied volatility at
this strike deflated relative to the stock's 20-day historical
(realized) volatility (76% vs. 139.1%), traders can rest easy
knowing they picked up these puts at a bargain.
Given that First Solar has nearly doubled from its March 4
year-to-date low of $24.46, it's no surprise that
calls have been the options of choice
on the stock. At the International Securities Exchange (ISE),
Chicago Board Options Exchange (
), and NASDAQ OMX PHLX (PHLX), traders have bought to open 37,985
calls during the past 10 sessions, compared to 20,653 puts. The
resultant call/put volume ratio of 1.84 ranks higher than 78% of
similar readings taken in the past year, pointing to a
healthier-than-usual appetite for calls over puts in recent weeks.
Echoing this trend is First Solar's
Schaeffer's put/call open interest ratio (SOIR)
of 0.88, which ranks in the 12th percentile of its annual range.
Simply stated, short-term speculators are more call-heavy than
usual toward the equity.
As touched upon, FSLR has had a tremendous technical run of late.
In addition to its brow-raising gains in 2013, the stock has
outperformed the broader
S&P 500 Index
(INDEXSP:.INX) by nearly 65 percentage points throughout the past
month. This impressive price action has been highlighted by the
equity's 10-day moving average, which has ushered the security up
the charts since early April.
Fundamentally, First Solar has a mixed history in the confessional,
and has fallen short of analysts' bottom-line expectations in four
of the past seven quarters. The stock has experienced an average
move to the downside of 2.1% and 1.3%, respectively, in the day and
week following the results. For FSLR's first quarter, Wall Street
is calling for a profit of 75 cents per share.
This article by
was originally published on
Schaeffer's Investment Research
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