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Option Watch: First Solar's Earnings Bear Roll

By Chris Tyler, Optionetics.com | Tue February 28, 2012 6:31AM PT

Naz’ 100 (QQQ) constituent and solar powerhouse First Solar (FSLR) is scheduled to report after the bell Tuesday night. Analysts expect mixed results from the outfit for its fiscal fourth quarter with estimates pegging earnings at $1.59 per share compared to last year’s $1.80. At the same time, demand is expected to pick up with sales growing to $784M versus $641M.

In front of the report and during Monday’s session, one large option trader looks to have adjusted for a continued bearish reaction in the stock which helped jolt First Solar’s put/call ratio up to a massive 3.13. Nearly 50% of an unusually heavy 100,000 total contracts were tied to four prints in March puts. The action is strongly suggestive of a vertical roll wherein the trader closed roughly 11,600 in-the-money March 39 / 32 spreads for $3.58 in order to establish an out-of-the-money March 34 / 27 bear vertical on about 12,500 contracts for $1.80 per spread.

Doing a bit of 'open interest' digging we uncovered what we can assume was the initiation of the March 39 / 32 bear put spread back on February 14. That day and with shares closing near 39.25 and about 9% above Monday’s close of 36.15, the two strikes saw near equal volume of 13,100 and 12,500 respectively with the spread closing mid-market for $2.59.

Based on closing prices, but with the potential to have done slightly better for him or herself, the trader is rolling proceeds of roughly $1.00 or better. This reduces the risk of holding the lower bear vertical through the report by that profit margin and puts the net held risk from the guesstimated $2.59 on the 14th for an open March 39 / 32 vertical to about $0.90 risk for holding the slightly larger March 34 / 27 bear put spread.

Figure 1: First Solar (FSLR) Daily Chart

Possibly stoking the trader’s decision, broker Cowen downgraded shares of FSLR along with peers Trina (TSL) and SunPower (SPWR) to “Neutral.” The cut appears tied to German draft legislation seeking to curtail its national subsidy program for the solar industry and one which, according to Maxim, “sucks the wind out of Q1 (demand) optimism.”

Technically, bulls in FSLR stock managed to dismiss both of Monday’s reports and pushed shares higher by 1.55% when all was said and done by the closing bell. And with shares off about 25% from its February 9 highs, the reaction could represent the start of a bullish turn as traders see any bearish catalysts as thoroughly discounted. However, aside from maybe a slightly oversold short-term condition, the decline has broken key technical supports and diminished the bull case. With the next level of support for FSLR being its December lows near 30 and a spot where the March 34 / 27 is worth $4.00 at expiration, but perhaps even more if one of those lower low double bottoms comes into play; we can't blame this sort of bear for wanting to stay the course with substantially less risk in hand.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

Recent articles by Chris Tyler, Optionetics.com

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September 19, 2012  -  Wall Street's Wednesday Lunch Options


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