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First Solar, Inc. (NASDAQ:FSLR) is slated to unveil its quarterly earnings report after tonight's close, and one group of speculators is betting on an earnings miss. FSLR's May 50 put is the most active strike today, where 2,574 contracts have traded for a volume-weighted average price (VWAP) of $5.12. Nearly all of these positions have gone off at the ask price, implied volatility was last seen 7.7 percentage points higher, and only 339 contracts make up open interest. In other words, it's safe to assume that new bearish positions are being created.
Given that FSLR is trading at $46.94, these puts are currently in the money. However, in order for the speculators to turn a profit, the stock must fall below breakeven at $44.88 (strike price less the VWAP) by the close on Friday, May 17 -- when front-month options expire. Risk, meanwhile, is limited to the initial cash outlay. With implied volatility at this strike deflated relative to the stock's 20-day historical (realized) volatility (76% vs. 139.1%), traders can rest easy knowing they picked up these puts at a bargain.
Given that First Solar has nearly doubled
from its March 4 year-to-date low of $24.46, it's no surprise that calls have been the options of choice on the stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 37,985 calls during the past 10 sessions, compared to 20,653 puts. The resultant call/put volume ratio of 1.84 ranks higher than 78% of similar readings taken in the past year, pointing to a healthier-than-usual appetite for calls over puts in recent weeks.
Echoing this trend is First Solar's Schaeffer's put/call open interest ratio (SOIR) of 0.88, which ranks in the 12th percentile of its annual range. Simply stated, short-term speculators are more call-heavy than usual toward the equity.
As touched upon, FSLR has had a tremendous technical run of late. In addition to its brow-raising gains in 2013, the stock has outperformed the broader S&P 500 Index (SPX) by nearly 65 percentage points throughout the past month. This impressive price action has been highlighted by the equity's 10-day moving average, which has ushered the security up the charts since early April.
Fundamentally, First Solar, Inc. (NASDAQ:FSLR) has a mixed history in the confessional, and has fallen short of analysts' bottom-line expectations in four of the past seven quarters. The stock has experienced an average move to the downside of 2.1% and 1.3%, respectively, in the day and week following the results. For FSLR's first quarter, Wall Street is calling for a profit of 75 cents per share.