Playing First Solar with Options

This article was originally published on Oct 24th 2010.

First Solar will be announcing their 3rd quarter earnings results on Thursday, Oct 28th after the market closes.

Here is their performance compared to some of their peers.

Ticker Performance (Week) Performance (Month) Performance (Quarter) Performance (Half Year) Performance (Year)
SPWRA -4.89% -3.52% 0.67% -25.68% -59.67%
CSIQ -6.20% 17.48% 4.84% -19.06% -10.43%
FSLR 0.68% 1.62% 4.41% 10.31% -6.75%
LDK -11.39% 30.34% 57.25% 36.64% 37.34%
TSL -5.85% -1.61% 8.21% 3.88% 46.51%
SOLF -7.14% -12.44% 0.00% 20.37% 88.97%
SOL -8.83% 8.20% 51.53% 62.07% 199.24%

In the past 12 months the stock has underperformed the overall stock market.The S&P is up 9.94% and FSLR is down 6.75%.

First Solar Stock Chart

The bull case for First Solar came out in an Oct 6th press release.

The company announced an increase of 380 MW of orders for 2011 over previously announced orders.

Here are the projects under contract by First Solar from their 10-Q filed on August 2nd, 2010.
Project Size in
Topaz, California
Sunlight, California
Sunlight, California
PPA – Southern California Edison
Stateline, California
PPA – Southern California Edison
Agua Caliente, Arizona
AV Solar Ranch 1, California
Silver State North, Nevada
PPA – NV Energy
PNM, New Mexico
EPC – (Utility-owned generation)
St. Clair, Ontario, Canada
Ontario RESOP Program
Walpole, Ontario, Canada
Ontario RESOP Program
Belmont, Ontario, Canada
Ontario RESOP Program
Amherstburg, Ontario, Canada
Ontario RESOP Program
Tilbury, Ontario, Canada
Ontario RESOP Program
* PPA – Power Purchase Agreement
  • 380 MW of new orders would be an increase of 19%!
  • Investors currently long FSLR will look at stock stock sitting within 10% of its 52 week high as just waiting for a nice earnings announcement to propel it to a new 52 week high.
  • With the price of the US Dollar getting weaker against the Euro, this does well for a US company like First Solar who sells its product in Europe.

[ad#Google300x250-Inpost] The bear case for First Solar will point to the high short interest in the stock.

  • Short interest is currently at 21% and a bear will say, smart money is short this company.
  • The Oct 6th press release did nothing for the stock price.
  • “Behind the numbers” pointed out recently that First Solar added a line item on their financial statement called “unbilled receivables”. A change in accounting that could be a red flag.

The options tell us another story.

The Nov 145 straddle is priced at almost $15, this is in essence predicting a 10% move in the stock. Post earnings we can see the stock as low as $130 or as high as $160.

What I find interesting is that this stock usually gaps up or down 10% on earnings. Why are the options only priced for the usual 10% move? Usually we see options priced much higher than the historical move, especially right before earnings.

Three trades ideas for three types of people.

Conservative: Stay away from the stock until after the news is out. After the announcement, trade for a continuation of the move.

Decisive: Bulls should buy a vertical call spread and bears should buy a vertical put spread.

Gambler: Buy the 125 put and the 165 call and look for the stock to move 20%.