Call Options Or Put Options On First Solar (FSLR)?

| April 12, 2013 | 0 Comments

First Solar (FSLR) provides solar energy solutions in two segments, components and systems.  The components segment develops solar modules that convert sunlight to electricity.  The systems division provides turnkey photovoltaic solar power systems to utilities, power developers, and commercial and industrial companies.

FSLR currently trades for $39.35 per share after a massive 45% one-day jump.  The shares are up 244% from the 52-week low of $11.43, and just eclipsed the 52-week high of $36.98.

Is this an opportunity to buy call options on FSLR after the company’s sales forecast came in far better than expected?  Or should you buy put options on FSLR because of the challenging economics of the solar power industry?

The bulls make a convincing argument…

First Solar shocked the investment world by announcing far better than expected sales forecasts for 2013 and beyond.  The company expects sales of nearly $4 billion in 2013 – a huge increase over the projected $3.2 billion.

What’s more, profits are expected to come in between $4 and $4.50 a share.  The average EPS estimate is $3.60.  So, you can see why investors are so excited about these numbers.

Additionally, the company’s revenues and earnings estimates for 2014 and 2015 substantially exceed expectations.  No matter how you slice, this is good news for FSLR bulls.

But the bears have a compelling case as well… 

FSLR is a heavily shorted stock, with over 30% of the float being held short.  In other words, the huge price spike yesterday is at least somewhat due to a short squeeze.

It’s possible the fundamentals don’t support such a huge upside move in the stock. Once the shorts are cleared out, cooler heads could prevail and drive the stock lower.

After all, it’s the solar industry we’re talking about.  There’s a ton of competition and margins have narrowed considerably over time.  Not to mention, government spending cuts could adversely affect spending on alternative energy projects.

Is FSLR’s great news enough to overcome the challenging economics of the industry?

If you think the bulls are right, take a look at buying the FSLR May 2013 $46.00 calls for around $1.50.

If you think the bears are right, take a look at buying the FSLR May 2013 $34.00 puts for around $1.45.

Yours in Profit,

Gordon Lewis

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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