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The shares of First Solar, Inc. (NASDAQ:FSLR - 32.74) dipped along with the broader equities market yesterday, and some options traders are expecting more technical headwinds in the wake of tonight's earnings release. During the course of the session, the solar concern saw roughly 10,000 puts change hands -- about a quarter of which transpired at the March 34 strike. Open interest rose overnight, and a healthy portion of the puts crossed at the ask price, pointing to newly bought bearish bets.
By purchasing the puts to open, the buyers expect FSLR to remain south of the $34 marker through mid-March, when front-month options expire. More specifically, the puts traded at a volume-weighted average price (VWAP) of $2.67, meaning the buyers will reap a reward if FSLR breaches the $31.33 level (strike minus VWAP) within the next few weeks. However, should FSLR stage a rebound and extend its longer-term uptrend, the most the buyers can lose is the initial premium paid for the puts.
That's not to say FSLR options are cheap, though. Heading into tonight's turn in the earnings confessional, demand for front-month options has increased, resulting in higher premiums. In fact, the stock's Schaeffer's Volatility Index (SVI) has soared to 77% -- above 45% of all other readings of the past year, suggesting March-dated options are relatively pricey at the moment.
However, yesterday's options traders aren't the only group with low expectations for FSLR. Despite outperforming the broader S&P 500 Index (SPX) by 14 percentage points during the past three months, the security boasts just three "buy" or better ratings, compared to 15 "holds" and three "sell" or worse recommendations. Likewise, the consensus 12-month price target continues to trend lower, and now stands at $27.06 -- representing a discount to FSLR's current share price.
Meanwhile, short interest accounts for a whopping 30.4% of the stock's total available float, representing more than a week's worth of pent-up buying demand, at FSLR's average daily trading volume.
Historically, First Solar has topped the Street's bottom-line earnings estimate in each of the past two quarters. For the fourth quarter, analysts, on average, are anticipating a per-share profit of $1.75. Should FSLR exceed expectations and continue its longer-term ascent, an unwinding of skepticism among options traders, analysts, or short sellers could translate into contrarian upside for the shares.