First Solar calls shine for bulls

Traders turned quick profits after First Solar posted surprisingly strong quarterly results yesterday afternoon.

On April 26, Investitute’s market scanners showed that 5,200 May $29 calls were purchased for $1.09 to $1.50 with shares at $28.77. This was clearly fresh buying, as open interest in the strike was a mere 72 contracts before the trades appeared.

Today those calls went for as much as $6.65, roughly quadruple their purchase prices. The stock rose about 18 percent in that same time, a sizable gain but nowhere near the returns of those contracts, underscoring how far options can outperform their underlying shares.

Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares.

FSLR jumped 11.84 percent today to finish at $33.91. The solar-energy company beat quarterly estimates and raised its outlook after the market closed yesterday.