Wednesday, November 30, 2011

First Solar (FSLR) - Elevated Vol, Calendar Spread, Downside Risk Heightened

FSLR is trading $47.26, up 7.9% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.


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First Solar, Inc. (First Solar) manufactures and sells solar modules with an advanced thin-film semiconductor technology.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. There's also some spooky downside vol that we can look at. Let's start with the calendar spread:

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Let's start with the Skew Tab.

We can see the front is elevated to the back across all strikes. We can also see a cool parabolic skew for both months, reflecting substantial downside risk and upside risk (i.e. potential).

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

The stock chart is scary bad. In fact, the 52 wk high is $175.42, while the 52 wk low is $40.05. The last earnings release saw the stock dip ~$14 from $57.95 to 43.97 or 24%. Right now the implied is elevated to the two historical measures. Specifically:

IV30™: 74.75
HV20: 62.78
HV180: 65.88

The 52 wk range in IV30™ is [32.29, 128.38], so 75 ain't exactly crazy high. In fact, the current level puts it in the 44th percentile.

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
The thing that I noticed the most, even beyond the vol diff from month-to-month, is the downside puts. The stock low is $40, but the Jan 21 puts are $0.12 bid, priced to 111 vol. Yikes.

For those willing to take on some downside risk, a calendar spread additionally funded with some far OTM puts in Dec or Jan could be an interesting play. Going diagonal allows for a delta bet and protecting some of that downside. The same can be said for the upside as the skew is parabolic.

This is trade analysis, not a recommendation.

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