Let First Solar, Inc. (FSLR) Stock Light Up Your Portfolio

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When investors discuss the solar industry, First Solar, Inc. (NASDAQ:FSLR) is the name that comes up most often. Over the years it has been volatile and one that is definitely considered a momentum stock. Those are exciting to watch, but they present challenges for traders.

Let First Solar, Inc. (FSLR) Stock Light Up Your Portfolio

When momentum stocks like FSLR rally, they do it so fast that they seem perpetually due for a pullback. And when they are falling, they seem headed into a chasm. In either case, most investors avoid the trade for fear of bad timing. For this reason, I use options where I can better control my risk levels and minimize the need to have surgical timing precision.

To add to the excitement, the solar industry is also prone to inflammatory headlines. Regulation and tariffs are constantly in the news, and it seems like we go from expecting one catalyst to another. Of late, they’ve favored the industry, helping fuel the rally.

FSLR stock is not expensive from an expectation perspective. It’s trading near the analyst average price target. Most experts have it rated as either a buy or a hold. This is a good balance, which reduces the likelihood of surprise downgrades without a material change to the fundamentals.


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It’s hard to gauge the valuation from the typical perspective. The industry in general has subsidies, which muddies the picture. However FSLR is cheap from a price-to-book ratio. This gives me some sense of value, even though they have a lot of improvements to make on the business efficiency side. Tesla Inc (NASDAQ:TSLA) is helping legitimize the industry with its efforts in moving consumption more towards replacing fossil fuels with solar power.

Technically, First Solar stock is having a great year, up 53% and carrying great 12-month momentum. This makes it difficult to chase price performance by simply buying the stock and hoping for even higher prices. I fear being too late to the party. Therefore today I will share a bullish trade that leaves room for error.

For the past two months, FSLR has been trading in a tight range which can be considered a flag at the top end of a huge 60% rally. Those can often serve as springboards for even higher prices. But we’ve noted already that the solar industry in general is prone to headlines and if one hits, they can determine the direction of the next breakout.

The move should be sizable and therein lies the need to account for the worse-case scenario. So it is critical that I choose my risk level to be at proven support levels that will survive such a move should it occur.

FSLR Stock Trade Idea

The Bet: Sell the FSLR Dec $35 put and collect 65 cents. This is a bullish trade where I have an 85% theoretical chance of having the price stay above my strike so I can retain maximum gains. Otherwise, I own the shares at that price and can accrue losses below $34.35.

Selling naked puts is not suitable to all investors. For those who prefer less risk, they can sell spreads instead.

The Alternate Bet: Sell the FSLR Dec $37.50/$35 bull put spread where I can yield 11% on risk with about the same odds of success.

Investing in the stock market carries risk, so I never bet more than I can afford to lose.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/first-solar-inc-fslr-stock-light/.

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