First Solar (FSLR) options are seeing a 160% spike in volume to nearly 50,000 contracts traded with puts leading calls by a margin of 2.25-to-1.0 in Tuesday’s session. Shares are under relative pressure and continuing on last week’s hard-hitting technical reversal after FSLR failed to clear its 200SMA following an explosive rally of about 70% in just under a month’s time.
The initial catalyst reversing shares last week appears tied to an announcement First Solar had halted panel shipments until 2013 for its Agua Caliente Project in Arizona. The company cited construction on the world’s largest photovoltaic power plant as being ahead of schedule and First Solar needing to slow down to meet contractual milestones according to a report from Bloomberg.
Most active on the session Tuesday are the evenly-traded October 20 and 18 puts with nearly matching volume centered around 5,800 contracts. Of that, the largest volume is a spread priced for $1.10 and put up 3,261 times. The question remains as to whether the trader is establishing a bear or put vertical, rolling strikes and / or in conjunction with stock due to open interest of about 6,400 for the higher in-the-money 20s and little residing interest in the 18 put.
Technically, with shares off about 5.25% just below 19 and potentially trying to find support off a test of FSLR’s 50SMA and a slightly looser challenge of its 62% Fibonacci retracement; bulls and bears could make the case for adjusting or fresh positioning off an area accepted as key to both directional camps. Shown below and to illustrate two of the agreeable possibilities are a 4 lot opening bull put spread for $1.10 and bear put spread for $1.10.
Figure 1: First Solar (FSLR) 4x Comparison Bull & Bear Verticals
Despite the nice fit a roll into the lower strike maintains due to the widely divergent open interest levels in both strikes, it appears an opening vertical is behind the action. The reason a vertical is favored is that with 45 days until expiration, there’s plenty of time to consider the initiation of an opening position such as a vertical. Also, with the near identical volume and the spread only accounting for about 55% of the activity; lesser but substantial spread prints of 441, 226, 369 and 327 amongst others look to confirm the opening of the vertical spread.
The one thing we still don’t know with greater certainty is whether today’s traders are looking at the situation bullishly or bearishly? Ultimately, given what we described as a critical area on the chart and at the same time, eschewing the fundamental picture, that insight requires a bit more carnal knowledge of those traders’ motives.
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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