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Option Brief: First Solar, Inc. (NASDAQ:FSLR) retreated along with the broader equities market yesterday, surrendering more than 5% to land at $69.63. Against this backdrop, puts traded at a faster-than-usual clip, with speculators either gambling on more downside or buying "options insurance" for their FSLR shares.
Roughly 19,000 puts crossed the tape -- a 23% mark-up to the stock's average daily volume. Echoing that, the security's 30-day at-the-money implied volatility jumped 3.1% to 65.6%, reflecting the growing demand for short-term contracts.
Most active on the day was the out-of-the-money June 67.50 put, where more than 5,200 contracts traded -- primarily in mid-sized blocks at the ask price, suggesting they were bought. Plus, nearly all of the action translated into new positions, with open interest rising by close to 5,000 contracts overnight.
As alluded to earlier, the buyers have one of two motives: "vanilla" option bears want FSLR to be sitting south of breakeven at $61.97 (strike minus volume-weighted average price of $5.53) when the options expire at the close on Friday, June 20, while protective put buyers want to lock in an acceptable price ($67.50) at which to sell their FSLR shares, should the equity extend its retreat.
In the case of the former, it would take a descent of 8.6% from FSLR's current price of $67.77 in order to break even. In the case of the latter, their primary goal remains for First Solar, Inc. (NASDAQ:FSLR) to extend its long-term uptrend -- the stock has advanced 87% during the past year -- but, as with any insurance policy, the puts help the buyers rest easier at night. Whatever the case, the maximum risk on the long puts is limited to the initial premium paid.