Unpacking First Solar’s Options Ahead of 2020 Election

Energy stocks might be a safe investment

Jul 14, 2020 at 10:44 AM
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Alternative energy and solar power specialist First Solar, Inc. (NASDAQ:FSLR) has, like many, seen a rapid recovery since the broad-market crash of early 2020. So much so that an interesting background on the recent rehabilitation -- and potential future outperformance -- on First Solar and the alternative energy sector came up in a Joe Biden portfolio done by Lisa Beilfuss at Barron’s.

Keeping in mind Biden’s presumed nomination for the Democratic Party’s presidential ticket in November of this year, Beilfuss noted a crossover between the former Vice President’s hand at improving the energy sector, noting the aforementioned improvement out of FSLR. With Biden’s pledge to highlight the reversal of climate change and green energy, Head of U.S. Policy Research at Cornerston Macro, Andy Laperriere, says investors may want to allot 20% to the sector.

Zoning in further on the stock, FSLR climbed all the way to $59.57 in Thursday’s trading, a chip-shot from its February peak just below $60. In fact, Thursday’s high is more than double the stock’s March bottom, and now has the equity back above its year-to-date breakeven level. Despite a stall near $48 last month, the stock has forged higher, with the help of its formerly resistant, 30-day moving average.


Digging into options, First Solar stock landed on Schaeffer’s Senior Quantitative Analyst Rocky White’s list of 20 stocks on the S&P 400 Mid-Cap Index (IDX) that showed the highest total options volume over the past 10 days. Specifically, 57,994 calls have crossed the tape -- compared to just 9,652 puts -- and is more than double the expected rate, according to Trade-Alert. Most popular by a long shot has been the weekly 7/10 53-strike call, which saw no fewer than 29,794 contracts traded by its Friday expiry.


Looking even further back, at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 6.60 calls were picked up for every put in the last 50 days. This ratio sits higher than 96% of readings from the past 12 months, indicating an unusually heavy appetite for long calls over the past 10 weeks.

Wrapping up, regardless of your own personal stance on energy stocks and the upcoming presidential election, it seems more than evident that the majority of options traders are projecting a continued rise from the sector. Proceeding with caution is always suggested, however, as market volatility could take Wall Street down any path without warning. One way to de-risk your portfolio is maintaining options exposure, and now is an opportune time with FSLR, given its attractively priced premium. The alternative energy name’s Schaeffer's Volatility Index (SVI) of 58% sits higher than 26% of readings from the past year, which means these traders are pricing in relatively low volatility expectations at the moment.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, July 12.


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