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First Solar Bears Wager Against Earnings

Put volume is easily outweighing call volume on FSLR today

by 11/1/2012 1:55 PM
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Puts have emerged as the options of choice on First Solar, Inc. (NASDAQ:FSLR - 24.49) today. Approximately 20,000 contracts have crossed the tape, representing a 60% jump from the average intraday volume for put options. Meanwhile, around 9,500 call contracts have changed hands, fewer than the 13,000 expected.

With FSLR stepping up to the earnings plate after the closing bell, it seems some speculators are hoping tonight's quarterly results disappoint. Specifically, FSLR's weekly 23-strike put has seen nearly 3,400 contracts trade, the majority of which have crossed at the ask price. Volume is easily outstripping open interest, and implied volatility has surged higher by nearly 102 percentage points, indicating new positions are being initiated. By buying these puts to open, speculators need FSLR to finish tomorrow's session (when the options expire) below the $22.08 mark (the strike minus the volume-weighted average price of $0.92), representing a 9.8% slide from the stock's current price.

Expanding the scope, today's activity in the options pits runs counter to the existing trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day call/put volume ratio of 1.50. This ratio ranks higher than 89% of similar readings taken in the past year, indicating calls have been bought to open over puts at an accelerated clip in recent weeks.

Additionally, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 ranks in the 16th percentile of its annual range. Simply put, short-term speculators are more call-heavy than usual toward the stock.

Given FSLR's inconsistency on the charts, it's easy to see why option players are having a hard time picking a direction. Despite outperforming the broader S&P 500 Index (SPX) by nearly 28 percentage points during the past 40 sessions, FSLR is still sitting on a 48% year-over-year deficit.

FSLR's impending turn at the earnings plate may also be prompting the uncertainty among option players. FSLR has a mixed history in the confessional, missing bottom-line estimates in three of the previous four quarters. Plus, the stock has experienced double-digit moves to both the upside and downside following two of its past four showings. For FSLR's third quarter, Wall Street is calling for a profit of $1.04 per share.


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