Solar stocks have delivered scorching returns so far this year. The Guggenheim Solar ETF (NYSEARCA:TAN) finds itself up 33% following its harrowing slide in the back half of 2014.
With the S&P 500 eking out a paltry 2% gain, TAN’s relative performance looks stellar.
Traders looking to get in on the action should take a look at First Solar, Inc. (NASDAQ:FSLR), which boasts a much better looking setup than TAN. While the broader solar sector finds itself overbought and wrestling with resistance (see TAN chart below), FSLR has been consolidating over the past month in an orderly fashion.
Tight bases such as this provide low-risk entries when the inevitable breakout finally materializes.
Adding further appeal to the coming breakout in First Solar are recent volume patterns. Its February advance was littered with high-volume up days, adding legitimacy and institutional oomph to the rally. In contrast, volume has dried up during its recent consolidation phase suggesting little, if any, major selling pressure.
Watch for a breakout over the $62 level to signal the next advance has begun in FSLR stock.
Score with a FSLR option play
As with most stocks these days, the implied volatility in First Solar stock options is low. In layman’s terms that means options are cheap, which suggests buying them is the way to go.
Buy the May $60 call for around $4.75. The maximum risk is limited to the initial purchase price and will be lost if FSLR sits below $60 at May expiration. You can always minimize the loss by exiting if FSLR breaks decisively below support (say, around $57.50).
The maximium reward is unlimited, allowing you to participate in any further upside in First Solar up until May expiration.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
