Deutsche Bank upgraded First Solar (FSLR) from Hold to Buy with a price target of $65.00 (from $50.00). As a result, our positions offer several opportunities worth considering.
First Solar (FSLR) Technicals
FSLR traced out a low (26.00) in April, rising 92.30% in the interim. For the past six weeks, the stock has consolidated those gains, forming a handle in the process. RSI is pointing to a bullish resolution, as well as stochastic. Both are encouraging, especially considering the upgrade and earnings over a month away.
If the stock breaks higher this morning (+1.51 pre-market) one option is to use the ToD setup for a day trade. Exit on a loss of the 5min 9/20ema.
Another option is to sell premium. Since FSLR IV Rank is above 50% (65%), a buy write is to our advantage. If you are bullish, as are we, you could generate $215.70 by trading a covered call. You could sell contracts of FSLR 2017 20-OCT 50.00 CALL for $2.15 or better. With the stock trading 49.93 pre-market, those premiums will be higher to start the day. If the stock continues higher before expiration you could make a profit of $372.70 per contract.
Adjust premium targets upward once the stock opens for trading.
Trade details:
- Premium received: $215.70 per contract
- Potential Profit if Stock is Above Strike: $372.70
- Downside Protection: 4.4%
Since we are bullish and expect FSLR to rise, another option presents itself. We could open a Bull Put spread for a credit. We would sell the weekly 148.00 put for $1.62 and buy the weekly 47.00 put for protection for $1.40. In the process, we collect a credit of $0.42 ($1.62 – $1.40) or better for each contract.
Since we are bullish and expect FSLR to rise, another option presents itself. We could open a Bull Put spread for a credit. We would sell the weekly 148.00 put for $1.62 and buy the weekly 47.00 put for protection for $1.40. In the process, we collect a credit of $0.42 ($1.62 – $1.40) or better for each contract.
If the stock is greater than 47.58 your maximum profit is $42.00 (credit received).
If the stock is below 47.58 at expiration your maximum loss is $58.00.
Bull Put CREDIT Spreads are a good way to enjoy weekly income when trading a stock that you feel will continue in a bullish trend. You profit from the credit and have a finite loss calculated into your trade. Additionally, with IV Rank above 50%, you will capitalize on the fleeting nature of premium and time (theta). Additionally, this options requires the least amount of capital and well suited to smaller accounts.
No matter which strategy you use today, FSLR presents a bullish opportunity. We might just do all three; sell covered calls against our existing position, buy some more stock and open a bull put spread for a credit. The time is ripe as most solar stocks look bullish. You could always trade some of FSLR competitors as well.
Happy Trading,
Vinny