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Option Brief: First Solar, Inc. (NASDAQ:FSLR) calls traded at roughly 2.5 the pace of puts yesterday. Of the 10,000 calls that changed hands, approximately one-quarter did so at the June 75 strike. Specifically, 2,576 contracts traded here -- the majority at the ask price, suggesting they were bought. Almost all of these calls translated as open interest overnight, making it safe to assume fresh bullish positions were initiated.
In a nutshell, the call buyers anticipate FSLR will rally over the next month or so, and topple the 75 strike by the close on Friday, June 20, when the back-month options expire. If the shares are able to mount such an advance -- that is, gaining nearly 19% from their current price of $63.05 -- it would put them in multi-year-high territory. In late March, in fact, the solar stock topped out at a two-year peak of $74.84 -- just shy of the strike.
Alternatively, given the size of the move required to bring the calls into the money, as well as the high levels of short interest on FSLR -- 12% of its float is sold short -- it's possible some of Tuesday's traders are short sellers hedging against the equity rising sharply in the near term. Regardless of the motive, the most the option buyers have on the line is the initial premium paid.
On the charts, First Solar, Inc. (NASDAQ:FSLR) has had a solid 2014, gaining 15.4%. In so doing, the stock has outperformed the broader S&P 500 Index (SPX) by nearly 17 percentage points year-to-date. If this positive momentum continues, a short-squeeze situation could ensue, further bolstering the shares.