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1:00pm (EST)
The bulls are pushing resistance again today as the Dow is looking for its third triple-digit gain in the past four sessions. Of course, thrown in the mix was Monday’s steep 216-point drop. Today’s pop has the bulls pushing resistance with less than 48 hours to go before the sequester cuts are due to kick in.
We will skip the zombie talk for the most part and although there are reports the knuckleheads are working on “something” to avoid the latest political gridlock but with the president on the road and with Congress taking last week off, it appears Cinderella is going to turn into a pumpkin.
One stock we want to mention today is First Solar (FSLR, $26.63, down $4.73) as shares are down 15% after disappointing earnings. We love playing the options on this stock as the calls and puts can easily make 100% or more depending on the trend.
Shares were left for dead last summer when they bottomed at $11.43 but First Solar starting gaining momentum on better solar panel pricing. Shares recently hit a 52-week high of $36.98 on the turnaround story but solar prices have been in a decline due to oversupply and weaker demand.
First Solar beat on earnings as they reported $2.04 a share versus estimates for $1.75 a share. Revenue came in at $1.1 billion but the suit-and-ties were looking for sales north of $1.3 billion. Lowered guidance for the first quarter is calling for sales of $650-$750 million and earnings of $0.70-$0.90 per share.
As you can see, it would have been a risky earnings trade as a directional play but there was sa little money to be made with a strangle option trade.
With shares just above $31 going into yesterday’s close, a 10% swing would have placed shares at $34+ or $28 or worse.
The March 28 puts (FSLR130316P00028000, $2.31, up $1.09) could have been picked up before yesterday’s close for $1.22 and they are up a snazzy 89% and have traded up to $3.05. The March 35 calls (FSLR130316C00035000, $0.08, down $0.99) were at $1.07 going into Tuesday’s close and are down over 90%.
A 10 contract trade for each options would have cost $2.29, or $2,290, and the present value of the strangle option trade is at $2.39, or $2,390, despite the big loss on the call options. If you would have cashed the puts out shortly after the open the trade could have made nearly 50%.
We didn’t like the risk/ reward the options offered as the premiums were a little juiced with First Solar being a high beta name.
The market has erased Monday’s losses and is showing strong gains as we head into the second half of trading. The Dow is higher by 128 points to 14,028 while the S&P 500 is up 16 points to 1,512. The Nasdaq is advancing 37 points to 3,166.
We have a NEW TRADE we are getting into se we have to roll. The trade was on our Watch List and with today’s pop, we believe we are getting a great entry price on the options we are recommending. Subscribers, check the Members Area for the latest updates and use limit orders to get the best fills.
