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First Solar, Inc. (NASDAQ:FSLR) saw a notable rise in bullish options activity on Tuesday, as approximately 30,000 calls switched hands throughout the course of the session. This was double the equity's average daily call volume, and more than seven times the number of puts exchanged. Taking an in-depth look at the data, it appears that about two-thirds of yesterday's call action can be attributed to a single spread strategist.
To be more specific, the far out-of-the-money March 50 and 60 calls garnered most of the attention, as each strike saw north of 10,000 contracts cross the tape. Most of the volume was comprised of numerous, varying-sized blocks that traded simultaneously. The 50-strike calls changed hands closer to the ask at a volume-weighted average price (VWAP) of $2.83, while the 60-strike calls traded near the bid price at a VWAP of $1.41. Since open interest surged at both strikes overnight, it's likely that one speculator constructed a number of bull call spreads for an average net debit of $1.42 per pair of contracts.
In this scenario, the trader is hoping FSLR will finish at or above the $60 mark by March expiration, but not so far north that he would have been better off simply making "vanilla" call purchases. The breakeven rail for this play is docked at $51.42 (bought strike price plus the net debit). Meanwhile, the strategist's maximum profit is limited to $8.58 (difference between the strike prices, less the net debit), no matter how far the shares rally during the options' lifetimes. On the other hand, his potential losses are capped at the net debit paid.
First Solar, Inc. (NASDAQ:FSLR) has performed well from a technical standpoint, gaining nearly 28% year-to-date, and close to 70% on a year-over-year basis. What's more, the solar energy concern has outpaced the broader S&P 500 Index (SPX) by nearly 8 percentage points in 2013. At last check, the stock was up 1.9% to wink at the $39.25 level.
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