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Option Brief: First Solar, Inc. (NASDAQ:FSLR) bucked the broad-market trend lower on Friday, thanks to an upbeat analyst note. As such, options traders picked up calls to either gamble on an extended rally for the alternative energy issue, or to protect their short positions in the event FSLR climbs to multi-year highs.
During Friday's session, FSLR saw roughly 29,000 calls cross the tape, representing a 13% mark-up to the stock's average intraday volume. Aside from weekly options -- which expired at Friday's closing bell -- the May 95 call attracted notable attention, with nearly 1,400 contracts exchanged. The majority of the calls traded on the ask side, and open interest at the out-of-the-money (OOTM) strike jumped by more than 1,100 contracts over the weekend -- the most of any strike -- hinting at buy-to-open activity.
Assuming the buyers were "vanilla" option bulls, their goal is for FSLR to be sitting north of $95 at the close on Friday, May 16, when back-month options expire. From the stock's current perch at $69.80, it would take a massive rally of more than 36% in order for the shares to perforate the strike -- which stands in territory not charted since September 2011.
However, it's worth noting that short interest accounts for a healthy 14.6% of FSLR's total available float. Against this backdrop, it's possible that the buyers were picking up OOTM calls to "insure" their short positions against an extended short-term uptrend. The shares have advanced nearly 164% during the past year, and have outperformed the broader S&P 500 Index (SPX) by almost 35 percentage points during the past two months.
Risk, meanwhile, is limited to the initial premium paid for the calls, should First Solar, Inc. (NASDAQ:FSLR) shares remain beneath the strike through the option's lifetime. Now is an opportune time to gamble with FSLR's short-term contracts. The stock's Schaeffer's Volatility Index (SVI) of 44% sits just 7 percentage points from an annual low, suggesting the stock's short-term options are attractively priced right now, from a historical standpoint. Meanwhile, the equity's Schaeffer's Volatility Scorecard (SVS) of 99 implies that FSLR has tended to make outsized moves over the past year, relative to what the options market has priced in.