First Solar calls enter stratosphere

A highly bullish option strategy in First Solar has resulted in moonshot returns.

Way back on April 24, Investitute’s proprietary scanners identified the purchase of 5,000 September $32.50 calls for $1.23 and the sale of 6,000 September $22.50 puts for $1, resulting in a net cost of $0.23. Volume was far above open interest in both strikes, showing that this was a new combination trade with shares at $27.11.

Today those calls traded for $10.94 while the puts were marked at just $0.06–resulting in a theoretical gain of more than 45,000 percent. The stock rocketed 59 percent in that period, a huge move but still far below that of the options on a relative basis.

Combination trades are particularly bullish because a rally boosts the price of the long calls while decreasing the value of the puts that were sold. Calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares with limited risk. The sale of the puts reduces the overall cost of the strategy but obligates the trader to sell shares at a certain price if they fall.

FSLR rose 3.4 percent to close at $42.94 today, its highest level in 11 months. Solar-energy companies plunged after Donald Trump was voted into the White House but have regained those losses and even moved higher from pre-election levels.