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First Solar, Inc. (NASDAQ:FSLR) -- as well as many of its sector peers -- is enjoying a halo lift, courtesy of SolarCity Corp (NASDAQ:SCTY). FSLR is up 3.7% at $69.34 in afternoon trading, and option traders are rushing to place bullish bets on the shares. In fact, the stock has seen roughly 28,000 calls change hands already today -- three times the intraday average, and nearly four times the number of FSLR puts exchanged.
Short-term options are in vogue, especially, as the stock's 30-day at-the-money (ATM) implied volatility (IV) has jumped 12.1% to 45.5%. What's more, the 10 most active options expire at Friday's close.
Most popular are the June 70-, 71-, and 72.50-strike calls, where the majority of contracts have traded on the ask side, suggesting they were bought. Plus, IV has popped at all three strikes, and volume has surpassed open interest at the two higher strikes, hinting at fresh initiations.
In the wake of FSLR's ascent, delta on the 70-strike call has spiked to 0.39 from 0.19 at Monday's close, implying about a 39% chance of finishing in the money at expiration. In order to reap a reward, however, the buyers need FSLR to be sitting north of $70.70 -- the strike plus the volume-weighted average price (VWAP) of $0.70 -- at the end of the week. Beyond breakeven, profit potential is theoretically unlimited, while risk is maxed out at the initial premium paid for the calls.
Meanwhile, delta on the 71-strike call has jumped to 0.30 from 0.13, and to 0.20 from 0.074 on the deeper out-of-the-money 72.50-strike call. The VWAPs of the June 71 and 72.50 calls are $0.54 and $0.25, respectively, indicating at-expiration breakevens of $71.54 and $72.75 for the buyers.
From a sentiment standpoint, today's appetite for long calls merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where FSLR has racked up a 10-day call/put volume ratio of 3.51. This ratio stands higher than 85% of all other readings from the past year, suggesting option buyers have picked up calls over puts at a faster-than-usual clip during the past two weeks.
Of course, the recent affinity for long calls may not be entirely "vanilla" in nature. Short interest accounts for 11.1% of FSLR's total available float, so some of the recent call buying -- especially at out-of-the-money strikes -- may be attributable to hedging activity among the shorts.
Whatever the motive, now is an opportune time to gamble with FSLR's short-term options. Despite today's 30-day ATM IV pop, the equity's Schaeffer's Volatility Index (SVI) of 41% sits just 5 percentage points from a 12-month low. In other words, FSLR's short-term contracts are attractively priced, from a volatility standpoint.
Thanks to today's ascent, First Solar, Inc. (NASDAQ:FSLR) boasts a month-to-date gain of 12.2%, bringing its year-to-date surplus north of 26.5%. What's more, the equity could enjoy more upside if the brokerage bunch begins to capitulate. Nine out of 14 analysts maintain "hold" or worse ratings, leaving the door wide open for upgrades to propel FSLR even higher.