It’s nice when the market rewards shareholders of a best-in-breed company in spite of a tough business climate. Nowhere is that more evident right now in the solar arena than First Solar, Inc. (FSLR).
Despite a favorable Paris climate change summit and U.S. tax credit this year, heavy debt, credit market concerns, poor business models and roadblocks with some state regulators have made for tough times for many and most solar plays — but not FSLR stock!
SolarCity (SCTY), which I’ve addressed as a bearish position twice in recent months as part of a pairs trade vs. FSLR, is one such entity that’s been on the ropes and maximized returns for both vertical spreads detailed for readers.
Maybe more impressive, despite the market’s volatility and mostly risk-off investing climate, bullish vertical positioning in FSLR has still allowed for modest profits and adjustment opportunities along the way.
As a bearish position, SCTY is on the back burner after falling from the mid-$50s into the teens. But in this strategist’s view, First Solar looks ready to ignite higher once again for bulls.
FSLR Stock Weekly Chart
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What’s even more to our liking is FSLR is flaunting its relative strength in a very and increasingly constructive manner on its price chart.
Looking at the provided weekly view, First Solar shares are trading just below its two-year high. An uptrend channel from its September 2015 low, which also established a corrective double bottom, have been positive signs of investor interest.
Now, and during the first couple months of 2016, FSLR has taken another supportive step toward higher prices by developing a high-level double bottom.
Combined, the technical picture looks very bullish and sets the stock up for a powerful multi-year breakout.
Given the current high-level double bottom in FSLR stock is on its third attempt at staying above the larger mid-2015 pivot of $65.50; it’s an important technical level to respect.
Should $65.50 break, a 7% stop loss (which allows for a bit of wiggle room) makes sense.
FSLR Bull Call Spread
Reviewing the FSLR options board, the June $72.50/$85 bull call spread for up to $3.50 is attractive given our bullish assessment, but recognizing it wouldn’t take much in percentage terms to torch the First Solar stock chart setup.
For $3.50, the spread trader breaks even at $76 in FSLR. That’s a full 10% higher than current levels, but with more than 100 calendar days until expiration, there’s plenty of time for this to play out.
Additionally, interim gains in FSLR stock would invariably lead to a building profit profile for this $12.50 wide spread which maxes out at $8.50 above $85.
And on the downside, should FSLR stock flame out by 7% and a stop used, softer initial directional risk, or Delta, of about 25 means the vertical’s loss could be trimmed down to roughly $1 to $1.50.
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.
