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While the blue chips extended their longest losing streak of the year, First Solar, Inc. (NASDAQ:FSLR) added 3.9% to finish at $38.52 on Tuesday. What's more, some option traders are rolling the dice on more upside for the alternative energy concern, as evidenced by yesterday's affinity for newly front-month calls.
The stock's September 38 call saw more than 2,500 contracts change hands -- a healthy portion at the ask price, suggesting they were bought. Plus, open interest increased at the strike overnight, underscoring our theory of new initiations.
By purchasing the calls at a volume-weighted average price (VWAP) of $2.32, the buyers will begin to profit if FSLR topples $40.32 (strike price plus VWAP) within the next few weeks. Risk, meanwhile, is limited to the initial premium paid for the calls, should FSLR backpedal south of the strike before expiration.
Now is an opportune time to gamble with FSLR's near-term options, though. The stock's Schaeffer's Volatility Index (SVI) sits at 45% -- just 4 percentage points from an annual nadir. In other words, FSLR's short-term option contracts are relatively cheap right now.
From a sentiment standpoint, most near-term option players are already in FSLR's bullish corner. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.81 registers in the 19th percentile of its annual range, suggesting that short-term speculators are more call-heavy than usual right now.
That's not to say FSLR's bullish bandwagon is crowded, though. Just three analysts offer up "buy" or better ratings, compared to 12 "holds" and three "sell" or worse suggestions. Plus, the consensus 12-month price target of $41.61 represents expected upside of just 8% to FSLR's current price. And although the number of shorted First Solar shares dropped by nearly 32% during the last two reporting periods, short interest still constitutes nearly 15% of the equity's float.
Technically speaking, FSLR has added almost 25% in 2013, but has recently pulled back to its 40-week moving average. This trendline acted as support earlier this year, and could once again launch FSLR on its next leg higher. Furthermore, the security's Relative Strength Index (RSI) of 34 is on the cusp of oversold territory, suggesting a rebound could be in the near-term cards.
Should First Solar, Inc. (NASDAQ:FSLR) resume its longer-term ascent, a round of upgrades and/or price-target hikes could translate into a contrarian tailwind for the shares.