First Solar Inc (NASDAQ:FSLR) shares have been rocking recently, and Monday’s 2.8% jump in FSLR stock provides just the excuse to take a renewed look.

Yesterday’s broad snap-back rally was all the beleaguered bulls could have hoped for. Stocks were flying, and bonds were dying. Thursday’s plunge is all but a distant memory now. While we can’t rule out the potential of any aftershocks, it’s certainly looking like last week’s drop was a one-off.

Yesterday, we highlighted the quality dip buy setup in emerging markets. Today, we’re heating things up with a look at solar stocks.

Believe it or not, FSLR stock has doubled in the past four months. Not bad for a security that was beaten to a bloody pulp last year.

TAN Your Portfolio for Profits

A proper look at FSLR wouldn’t be complete without first assessing the Street’s favorite solar fund — the Guggenheim Solar ETF (NYSEARCA:TAN). The pair boasts a strong correlation due in large part to the fact that First Solar shares are the top holding for TAN.

But the solar ETF does hold 25 other stocks, making it fairly representative of the space as a whole. And though its liquidity isn’t the best (average daily trading volume is around 300,000), TAN is the best vehicle traders have to chart the sector.

Much to the chagrin of alternative energy lovers, TAN has been a veritable dog over the years. But every dog has its day, as they say. And the past four months have definitely seen a turn for the better. Since bottoming in mid-April, the solar sector has rallied 28% rising back above the 20-day, 50-day, and 200-day moving averages in the process. The ascent has been robust enough even to turn the 200-day higher, which we haven’t seen in years.

Volume patterns have been favoring buyers, with accumulation days aplenty cropping up in June and July. Last week’s retreat created a textbook pullback which was quickly bought alongside everything else Monday. The solar sector isn’t just heating up; it has been hot for months now.

And that brings us to FSLR stock.

First Solar’s Chart

First Solar shares have mirrored the sector this summer. Except instead of rising 28%, FSLR is up just shy of 50%. That, friends, is what you call relative strength.

And it goes without saying that the stock has bested the performance of not just its sector but also the entire market.

Like its sector, FSLR finds itself above rising moving averages across all time frames. Last week’s pullback carried shares directly to the 20-day MA, which is gathering ground numero uno for dip buyers.

They certainly didn’t disappoint. On Friday, the stock scored a bullish engulfing candle that completely enveloped Thursday’s down day. Then on Monday, we saw epic follow-through in the form of the aforementioned 2.8% surge.

Since the stock bottomed in April, we’ve seen the Relative Strength Index (RSI) indicator confirm the bulls’ control by remaining above 50. That makes me all the more comfortable betting on trend continuation here.

The Trade on FSLR Stock

Unlike the rest of the market which saw a substantial spike in implied volatility last week, demand for First Solar options has been tepid at best. Such complacency has driven the stock’s implied volatility rank into the tank at 13.3%, which makes long option plays all the more attractive.

To capitalize, buy the Oct $47.50/$52.50 bull call spread for $2.20. The max loss is $2.20, and the max gain is $2.80. To realize the full reward, FSLR needs to trade above $52.50 by expiration.

As of this writing, Tyler Craig held no positions on any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.