Of late, it’s been the trading equivalent of the classic Tale of Two Cities in the solar complex. Nowhere is this more evident than in two of the group’s heavyweights, First Solar, Inc. (FSLR) and SolarCity Corp (SCTY).
And for traders, the contrast on our trading charts is setting up yet another pairs trade in FSLR and SCTY stocks as well.
Let me explain.
In the immediate aftermath of Paris and the U.S. tax credit extension and a technical goosing to the upside of most all publicly related solar tickers, this strategist offered out a pairs trade involving a bullish options trade in FSLR stock and a bearish options position in SCTY.
Bullish SCTY investors were far from pleased, judging by the comments section of the article. Somewhat perplexing, the penned aggression failed to recognize the SolarCity short position as one half of a pairs trade with nary a word about FSLR.
Similarly askew, the verbal defense of SCTY didn’t acknowledge our shorter-term bearish positioning following the massive price spike. Instead, comments seemingly harped upon evil short interest and optimistic grandeur of what might occur in SCTY over time.
Since then the market has spoken in favor of FSLR and is warning SCTY shareholders of weaker times ahead.
Not only has our original pairs thesis panned out, with the previously discussed fundamentals a likely contributor, but those charts are setting up again for bulls in FSLR and bearish positions in SCTY stock.
Still a Hot Buy in Solar: First Solar
Since our analysis late last month and despite a massive “risk-off” corrective move in the broader market, shares of FSLR are actually higher by more than 2%.
The current price action puts FSLR stock narrowly above the pivot of its weekly chart corrective double-bottom pattern which we detailed last time. The yellow oval highlight depicts the time of our original technical observation.
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FSLR Bullish Strategy
Checking the First Solar options board; the March $65/$75 bull call spread for up to $3.50 is a reasonable, hedged and limited risk way to position bullishly.
There’s an earnings catalyst in late February, and should shares of FSLR continue to prove themselves worthy, a move above $75 at March expiration would yield a return of 185% in less than two months.
Still a Hot Short in Solar: SolarCity
Since lawmakers put the squeeze on SCTY’s large short interest, currently at 43%, shares of SolarCity have fallen precipitously from a discussed cluster of technical resistance.
With a confirmed fourth lower high now in place, a resistance-style entry for bears has been replaced by a more traditional continuation flag or maybe small symmetrical triangle pattern.
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SCTY Bearish Strategy
Checking the SCTY options board, the March $29/$24 bear put spread for up to $1.60 looks attractive.
Similar to FSLR, the bearish vertical in SCTY allows for the trader to maintain a limited-risk position through an estimated mid-February earnings event.
A max return of 212% will be provided upon shares hitting fresh 52-week lows below $24 at March expiration.
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.
