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Bulls Pile On as First Solar, Inc. (FSLR) Runs Higher

FSLR's May 55 calls are seeing buy-to-open activity today

by 4/29/2013 12:14 PM
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Another day, another new high for First Solar, Inc. (NASDAQ:FSLR), with the stock hitting the $46.25 mark right out of the gate. This is the equity's loftiest intraday perch since February 2012. Some speculators in today's session think FSLR has room to run, and are eyeing the equity's May 55 call. Three-quarters of the roughly 2,300 contracts traded here have gone off at the ask price, and volume is outstripping open interest, signaling the initiation of new bullish positions.

By purchasing these out-of-the-money calls, traders expect First Solar to muscle its way north of the $55 mark over the next several weeks. More specifically, the calls will become profitable with each step above $55.55 (strike plus the volume-weighted average price of $0.55) FSLR takes through the close on Friday, May 17 -- when front-month options expire. This breakeven mark represents expected upside of 22% from the stock's current perch at $45.58. While moves of this magnitude may seem grand, it bears mentioning that FSLR's 20-day historical (realized) volatility stands 140.3%. Should the equity fail to topple the strike price by expiration, though, the most today's call buyers have on the line is the initial premium paid.

Given that FSLR has added a brow-raising 148% during the past 52 weeks, it's no surprise that calls have been preferred over puts. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 32,684 calls, compared to 16,434 puts. The resultant call/put volume ratio of 1.99 ranks higher than 82% of similar readings taken in the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish in recent weeks.

Echoing this trend is First Solar's Schaeffer's put/call open interest ratio (SOIR) of 0.92, which ranks in the 19th percentile of its annual range. What this means is that short-term speculators are more call-heavy than usual toward the stock.

As mentioned, FSLR has posted an impressive year-over-year return. More recently, the stock got a big jolt after an upbeat earnings outlook prompted a bevy of bullish attention from the brokerage bunch. The stock is now on track to notch a seventh straight monthly close north of its 10-month moving average. This trendline previously guided the security lower throughout most of 2011 and 2012.

On the fundamental front, the company is tentatively scheduled to report earnings sometime within the next week. First Solar, Inc. (NASDAQ:FSLR) has bested analysts' bottom-line expectations in three of the last four quarters. Wall Street has forecast a first-quarter profit of 75 cents per share for FSLR.


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