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Option Brief: First Solar, Inc. (NASDAQ:FSLR) gained 3% yesterday after upbeat earnings from Trina Solar Limited (ADR) (NYSE:TSL) translated into a sector-wide halo lift. Additionally, the company announced plans to build a $23 million solar energy plant at a Rio Tinto mine in Cape York, Australia. Not surprisingly, call volume more than doubled put volume in FSLR's options pits.
Most active in Wednesday's session was the out-of-the-money June 65 call, which saw more than 3,000 contracts change hands. More than three-quarters traded at the ask price, and open interest spiked by nearly 2,600 contracts overnight, making it safe to assume the short-term bets were bought to open.
Put simply, yesterday's traders either wagered on FSLR shares rallying during the next month, or picked up the calls as protection against the same. If the speculators are "vanilla" bulls, the goal is for the stock -- currently 1.2% higher at $61.12 -- to muscle north of $66.25 (strike plus the volume-weighted average price of $1.25) by the close on Friday, June 20, when front-month options expire. Additional gains will be had beyond that breakeven point.
On the other hand, the traders may have been short sellers picking up the calls as near-term protection against a rally, while maintaining a longer-term bearish view on FSLR. After all, 12% of the equity's float is sold short. In any case, the most either group of buyers has on the line is the initial premium paid.
With today's move higher, First Solar, Inc. (NASDAQ:FSLR) has now advanced nearly 12% in 2014, despite a recent pullback. In fact, the shares have outperformed the broader S&P 500 Index (SPX) by 11.9 percentage points during the past 60 sessions, and recently took a bounce off of their 160-day moving average.