Tuesday, February 23, 2010

Options Flash "First Solar Burns Out; Bears Taste Blood" (FSLR)

Back on January 19 we had a similar post, "Options Update: Trader Expects Extended Slide for First Solar, Inc. (FSLR)":
The stock is trading down seven cents at $124.00 in early pre-market. The stock actually showed some relative strength on Friday, closing down about half the percentage decline of the Nasdaq.
If I had to guess, I'd say the November 12 lows, $115.09 intraday and $115.37 closing are the immediate downside risk although as you'll see in the story someone is thinking lower....
From Forbes:

If the bearish options traders are right, First Solar should soon slip below the century mark.

A pair of analyst downgrades and price decline of as much as 7% to $106.30 Tuesday fueled bearish options activity on the manufacturer of solar modules. First Solar was cut to underperform from neutral and given a 12-month target share price of $90 at Wedbush. FSLR also received an 18-month target share price of $90 and a sell rating at Wunderlich Securities.

One pessimistic options player purchased a debit put spread to position for continued downward movement in the price of shares by April expiration. The investor purchased approximately 3,400 puts at the April $105 strike for a premium of $6.86 apiece, and sold about the same number of puts at the lower April $85 strike for an average premium of $1.57 each. The net cost of the spread amounts to $5.29 per contract. Maximum potential profits of $14.71 per contract are available to the trader if First Solar's shares plummet 20% from the current day's value to $85 by April expiration. The investor breaks even on the transaction only if shares decline another 6.2% to $99.71.