Thursday, July 29, 2010

"First Solar Earnings Preview: What’s the probability of a $19 move?" (FSLR)

UPDATE V: "First Solar Second Quarter Earnings Call Presentation PDF (FSLR)"
UPDATE IV: "First Solar: Guiding EPS Up, Bad Tone to the Call (FSLR)"
UPDATE III: "First Solar: I Shall be Going Long(er) Berkshire Hathaway in the Morning (FSLR; BRK.B)"
UPDATE II: "First Solar: It's all in the guidance (FSLR)"
UPDATE I: "First Solar: Awoooga, Awoooga--Dive-Dive-Dive (FSLR) "First Solar, Inc. Announces Second Quarter 2010 Financial Results"

Original post:
Despite all my harping about the "mystery/history" run-up into earnings and fade moves of the last couple years (and pronouncedly the last four quarters) the stock has not run up this week.
The expectation is that the company will beat so the action will focus on the guidance.
With half an hour to the close I'm thinking long ain't wrong.
The stock is down $1.85 at $135.19.
From Option News Network
55% option implied volatility translates to a likely trading range of $37 for next three weeks
First Solar Inc. (NASDAQ:FSLR) reports earnings after the close today with consensus estimates calling for $1.61 after $2.11 in the year ago quarter, according to Thomson Reuters. Full year 2010 earnings per share (EPS) are expected to be around $7.09, with high and low analyst projections of $8.45 and $6.40 respectively.  Using $7 and this morning’s opening price for the stock around $138, that puts the current price-to-earnings (P/E) ratio just under 20 times 2010 results.
Investors today will be paying close attention to comments from the company on the growth of solar energy initiatives that could fuel photovoltaic product sales going forward, especially after the hit the industry took earlier this year on reductions in subsidies from the number one national proponent of sun power, Germany. In the aftermath of that uncertainty, FSLR shares have fluctuated between $100 and $150 this year, driving 30-day historical volatility to nearly 80% in June and sustaining option implied volatility over 50%.
FSLR vol First Solar (FSLR) Earnings Preview: What’s the probability of a $19 move?

What does the straddle say option players are expecting after earnings today?

Option implied volatility of nearly 55% translates into daily moves of about 3.4% and for the next 22 days until August options expiration, roughly 13.25%. Using implied volatility this close to expiration can be tricky, but another handy gauge of market expectations confirms this data. The at-the-money straddle is an excellent and easy to use indicator of what option players are betting on because by using the combined call and put prices for the strike closest to the actual stock price, you can see what a big group of diverse participants thinks is the most likely trading range, and thus the expected risk for potential price moves in the stock.
As of 11am ET, the August 135 straddle was trading for $15.60 with the stock around $135.75. This means that professional option market makers are willing to take the risk-weighted bet that FSLR stays within a range of about $15.60, higher or lower from the current price, until options expiration....MORE