In a space full of flame-outs, solar play heavyweight First Solar (FSLR) is looking very hot these days. In fact, following the company’s recent earnings beat, FSLR stock looks ready to go long.
First Solar posted a very good Q3 report as the solar giant managed a massive profit beat and a strong earnings hike for its 2015 profit guidance. First Solar stock enjoyed positive feedback from investors as shares of FSLR sailed higher by nearly 12%.
And who can blame First Solar investors? Since its IPO back in late 2006, the company has continued to grow as a major force in the solar group. Just as important, First Solar has played smart and made its moves without biting off more than it can chew.
The literal bottom-line: First Solar has remained consistently profitable while peers have increasingly faced pricing pressures and oversupply.
At the extreme, “hedge fund hotel” SunEdison (SUNE) has witnessed a huge investor backlash over its elevated debt, financial engineering gone awry and its recent-much larger-than-forecast earnings loss.
FSLR Stock Weekly Chart
Technically speaking, FSLR stock looks very bullish right now. Both FSLR’s larger weekly view and daily chart have established corrective, reversal patterns which are just now signaling the emergence of a new bullish trend for investors.
The chart above shows a decisive breakdown of a former uptrend. The trend change went on to form a large corrective double-bottom in FSLR stock which began back in September 2014.
As the second weekly pivot low has fully formed — which is really a series of three pivots over a couple month period — the bottom should hold, causing FSLR to break into higher prices as an uptrend develops off the double-bottom.
FSLR Stock Daily Chart
That’s where the second chart comes in. This view shows that FSLR stock has developed a very similar-looking double-bottom pattern on the daily time frame.
Currently, shares have pulled back to successfully test FSLR stock’s 200-day simple moving average.
At the same time the daily chart is hinting of an uptrend as FSLR stock now has two higher highs and lows now in place. Taken together, this is bullish development for FSLR.
Lastly, Monday’s trading in FSLR stock confirmed last Friday’s pivot low test of the 200 SMA following a five-day pullback pattern from FSLR’s relative highs scored on the heels of its earnings blowout.
All told, the price action in FSLR is very constructive and is technically supportive of higher prices for shares of First Solar.
FSLR Stock Long Call Strategy
The developing uptrend in FSLR stock could prove to be a truly powerful price run given First Solar’s position both on and off the price chart. Therefore, I’d personally like to use a longer-dated option in order to stay the course as long as possible.
The problem is that, despite First Solar’s best-in-class status, FSLR options are a bit illiquid and definitely more problematic the further out in time one goes.
Given this modest conundrum, one contract which is attractive is the FSLR January $50 call for a purchase price of up to $7.00. Currently, the call is priced at $6.30 mid-market with shares at $53.55. This particular long call is roughly two-thirds in-the-money, hence its higher dollar price.
The benefit of a higher priced or deeper call purchase in FSLR stock is that the contract trades more like stock from the get-go. At the same time, the call’s risk is wholly defined by the purchase price and roughly 12% of FSLR stock. And while it’s unlikely, in the event of another fast moving solar flame-out hitting FSLR, that’s a good insurance policy to have.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
