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Bears Pile On as First Solar Sinks

FSLR puts are flying off the shelves in today's session

by 10/5/2012 2:06 PM
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Option players have been scooping up First Solar, Inc. (NASDAQ:FSLR - 20.11) puts at a quicker pace than usual in recent weeks. The stock's 10-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE)/NASDAQ OMX PHLX (PHLX) put/call volume ratio has risen to 1.04, from its 50-day put/call volume ratio of 0.76. Plus, the shorter-term ratio ranks higher than 63% of other such readings taken in the last year, implying puts have been bought to open over calls at an accelerated clip.

Echoing this put-skewed trend is FSLR's Schaeffer's put/call open interest ratio (SOIR) of 1.35, which shows put open interest outweighs call open interest among options with a three-month shelf-life. Also, this ratio ranks in the 93rd percentile of its annual range, suggesting short-term speculators have rarely been more put-heavy toward the stock.

Traders aren't letting off the pessimistic pedal in today's session, either. Approximately 82,000 put contracts have changed hands, representing nearly seven times the average daily put volume. As a point of comparison, around 42,000 calls have changed hands.

The October 20-strike put has emerged as the most popular option on the day thus far. The majority of the roughly 8,900 contracts have crossed at the ask price, and implied volatility has risen 5.9 points higher to 85.6%, allowing us to assume that a portion of the volume here could represent buy-to-open activity. By initiating these long puts, traders are betting FSLR will fall 6.6%, below the $18.87 mark (the strike minus the volume-weighted average price of $1.13), by October expiration.

Investors outside of the options arena have taken also taken a skeptical stance toward FSLR. Short interest accounts for about half of the equity's available float. What's more, with FSLR's steep 10.8% plunge in today's session, the stock has been restricted from short-selling activity.

Today's depressing price action only highlights FSLR's longer-term technical struggles. On a year-to-date basis, the shares have shed around 41% of their value. On the charts, the stock's 200-day moving average has ushered FSLR steadily lower since April 2011, and the equity's most recent rally attempts were easily capped by this stern level of overhead resistance.

Going forward, additional headwinds could be in store for FSLR. Today's price plunge comes on the heels of a bearish note from Avian Securities. This morning, the brokerage firm cut its outlook on the stock to "negative" from "positive," claiming there are "reliability issues with one of the company's products." With five covering analysts still maintaining "strong buy" recommendations for the equity, the door is open for another round of downgrades in the near term.

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