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The shares of First Solar, Inc. (NASDAQ:FSLR - 29.61) have outperformed the S&P 500 Index (SPX) by more than 53 percentage points during the past couple of months, and continued to outshine most stocks yesterday. Against this backdrop, call volume popped on the solar concern -- meaning option traders are rolling the dice on additional upside, or short sellers are getting nervous and hedging their bearish bets.
By the close, FSLR had seen around 47,000 calls cross the tape -- more than twice its average daily call volume. For comparison, roughly 23,000 FSLR puts changed hands. Most active was the out-of-the-money January 35 call, which saw more than 3,500 contracts traded. The majority of the calls crossed at the ask price, and call open interest spiked overnight, suggesting the contracts were purchased to open.
More specifically, the calls changed hands at a volume-weighted average price (VWAP) of $1.03, indicating a breakeven level of $36.03 (strike plus average premium paid) for the buyers. So, assuming the calls were purchased by "vanilla" option bulls, their goal is for FSLR to rally roughly 21.7% from current levels within the next couple of months. However, if the calls were bought by short sellers, their goal is for FSLR to retreat, and the options simply lock in an acceptable price at which to repurchase the shares, should the stock extend its uptrend.
Speaking of FSLR bears, there are plenty on Wall Street still skeptical of the equity's rally. Short interest accounts for more than 44% of FSLR's total available float, and would take more than a week to unwind, at the stock's average daily trading volume.
Elsewhere, just three out of 23 analysts deem FSLR worthy of a "buy" or better endorsement. Plus, the consensus 12-month price target on the outperformer sits at $23 -- representing a significant discount to the stock's closing price of $29.61 on Tuesday.
Should FSLR continue to fly in the face of pessimism, a capitulation by the bearish holdouts -- in the form of a short-squeeze situation, upgrades, or price-target hikes -- could add contrarian fuel to the security's fire.