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Along with some of its alternative-energy peers, First Solar, Inc. (NASDAQ:FSLR - 35.86) is trading decisively higher this afternoon. Against this backdrop, the options crowd is picking up short-term calls at a rapid-fire rate, either to gamble on more short-term upside or to hedge their bearish bets.
So far today, FSLR has seen around 30,000 calls cross the tape -- more than twice both its average intraday call volume, and the number of FSLR puts exchanged. Most of the action has transpired at the weekly 2/22 36-strike call and the March 45 call, which have seen roughly 4,100 and 2,400 contracts change hands. The bulk of the calls have crossed at the ask price, and volume has surpassed open interest at both strikes, pointing to buy-to-open activity.
By purchasing the weekly calls at a volume-weighted average price (VWAP) of $1.43, the buyers will reap a reward if FSLR conquers the $37.43 level (strike plus premium paid) by Friday's closing bell, when the options expire. Meanwhile, the VWAP of the out-of-the-money calls is $0.89, indicating a breakeven of $45.89 for the buyers. Considering it would require a rally of about 26% for FSLR to hit this target, it's possible that the March 45 call buyers are either betting on a post-earnings surge (First Solar will report one week from today), or are protecting their pessimistic positions.
The latter motive is entirely possible, considering short interest accounts for 30.4% of FSLR's total available float. In fact, at the stock's average daily trading volume, it would take more than a week to buy back all of these bearish bets. By purchasing out-of-the-money calls, the skeptics can lock in an acceptable price at which to repurchase their shorted shares, should FSLR skyrocket north of $45 within the next month.
In afternoon action, FSLR -- like many solar stocks, including SunPower Corporation (NASDAQ:SPWR) -- is higher, tacking on 5.2% to explore the $35.86 level. Earlier in the session, the security topped out at $36.98. From a longer-term perspective, the equity has added more than 26% in February, and is on pace to end the week atop its 80-week trendline for the first time since early July.
On the fundamental front, First Solar has topped the Street's bottom-line earnings estimates in each of the past two quarters. Another upside surprise could send the shorts scrambling, translating into a contrarian boon for the shares.