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Option Brief: While calls were the options of choice on First Solar, Inc. (NASDAQ:FSLR) yesterday, a front-month put emerged as the most sought-after contract. By the time the closing bell rang, nearly 1,100 November 45 puts had changed hands, almost all of which did so at the ask price. Implied volatility at the strike moved 3.5 percentage points higher, and open interest rose overnight, pointing to buy-to-open activity. With the solar power concern headed to the earnings confessional next week, it appears one group of speculators is expecting (or hedging against) a big move to the downside.
Earlier this month, FSLR shot past the $45 mark after announcing plans to build a West Coast-based power plant, and, at last check, the stock was lingering near $53.84. As such, delta for the November 45 puts is docked at negative 0.17, suggesting a 17% chance the option will be in the money at expiration. Should the security fail to breach the strike price over the next several weeks, the most yesterday's put buyers stand to lose is the premium paid.
Given FSLR's impressive 74% year-to-date advance, the activity at this deep out-of-the-money put could be the result of shareholders protecting paper profits against a post-earnings pullback. If this is the case, the investors were willing to pay up for their peace of mind, as Schaeffer's Volatility Index (SVI) of 86% ranks in the 80th percentile of its annual range. In other words, premium on FSLR's short-term options is relatively expensive at the moment.
As touched upon, First Solar, Inc. (NASDAQ:FSLR) will unveil its earnings report after the market closes next Thursday. The company has fallen short of analysts' expectations in five of the past eight quarters, prompting the stock to drop an average of 4.4% in the subsequent session. For First Solar's third quarter, Wall Street is calling for a per-share profit of 95 cents, 32 cents less than its year-ago results.