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First Solar Jump Sparks Run on Weekly Options

FSLR speculators bought soon-to-expire calls and puts

by 9/28/2012 9:12 AM
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Options traders flocked to First Solar, Inc. (NASDAQ:FSLR - 23.11) yesterday, with both calls and puts flying off the shelves. By the time the dust settled, the stock had seen roughly 63,000 calls and 56,000 puts change hands, more than doubling FSLR's average daily volume of around 23,000 calls and 21,000 puts.

On the bulls' side, traders established new positions at the weekly 23- and 24-strike calls, which saw around 6,800 and 5,800 contracts traded, respectively. The majority of the calls crossed at the ask price, and open interest muscled higher at both strikes overnight, confirming our theory of buy-to-open activity.

By purchasing the calls to open, the buyers are betting on FSLR to extend yesterday's rally in today's session, which represents the weekly options' remaining lifetime. Specifically, the 23-strike calls traded for a volume-weighted average price (VWAP) of $0.44, meaning the buyers will profit if FSLR topples the $23.44 level (strike plus premium paid) today. Meanwhile, the VWAP of the 24-strike calls was $0.27, indicating a breakeven point of $24.27.

On the bears' side, investors honed in on the weekly 23-strike put, which saw open interest increase by more than 2,800 contracts overnight -- the largest of any strike. The bulk of the puts changed hands at the ask price, once again hinting at buyer-driven volume.

The goal of the 23-strike put buyers is for FSLR to pare yesterday's gains and breach the $23 level today. Specifically, the VWAP of the puts was $0.42, meaning the buyers will reap a reward if FSLR falls beneath the $22.58 level (strike minus premium paid) by the closing bell.

As alluded to several times, the shares of FSLR skyrocketed nearly 11% on Thursday, as investors waxed optimistic on a potential contract to supply panels for NextEra Energy, Inc.'s (NYSE:NEE) massive project in the California desert. However, NextEra hasn't "even filed our plan for the project" with the California Energy Commission (CEC), let alone chosen the photovoltaic solar technology, company spokesman Steven Stengel wrote Reuters. Furthermore, FSLR traders also digested the company's agreement with PNM Resources, Inc. (NYSE:PNM), and the appointment of Bruce Yung as vice president of business development for China.

Ahead of the bell, FSLR is pointed 0.6% lower. Should the stock resume its uptrend, it'll have to perforate its 200-day moving average -- a feat not accomplished since April 2011.

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