Call Options Or Put Options On First Solar (FSLR)?

| November 21, 2012 | 0 Comments

FSLR OptionsFirst Solar (FSLR) designs and manufactures solar modules using a proprietary thin film semiconductor technology.  FSLR is able to transform a two foot by four foot sheet of glass into a complete solar module in less than three hours.  And they use about 1% of the semiconductor material needed to produce crystalline silicon solar modules.

FSLR currently trades for $24.27 per share.  The shares are down 53% from the 52-week high of $51.89.  But the stock has recently rebounded 112% from the 52-week low of $11.43.

Is this an opportunity buy call options on FSLR as solar stocks rebound?  Or should you buy put options on FSLR as solar stocks roll over again?

The bulls make a convincing argument…

The solar industry has undergone a major upheaval in recent years.

The huge government subsidies in Europe that fueled the first wave of solar power expansion are long gone.  And the market has been flooded with cheap Chinese solar panels.

Today, the US and Europe are fighting back against the unfair advantage their Chinese competition gained from massive government subsidies.  The US has imposed a massive 30% tariff on all Chinese made solar panels.

It’s leveled the playing field for US solar manufacturers against the Chinese competition and removed some of the downward pressure the cheap Chinese panels put on margins.

More importantly, the solar industry is maturing.  The best companies with strong management teams and good products will be the ones that emerge as the winners.

That’s where FSLR comes in…

FSLR is largely recognized as the leading US based company in solar technology.

Their sales of large solar projects are soaring.  And they have a 3 gigawatt backlog of orders in the pipeline.

This is one company that’s strong enough to weather the ebbs and flows as the industry matures.  And will emerge on the other side as one of the market leaders.

But the bears have a compelling case as well… 

First Solar had their day in the sun.  The stock was juggernaut…they created an inexpensive way to build solar panels and capitalized on the massive government subsidies for solar panels in Europe.

But those days are long gone…Europe has slashed their subsidies and competitors have developed more efficient solar panels.

In other words, the game has changed.  And the profit margins that made FSLR so attractive to investors aren’t coming back.  

What’s more, the next phase of expansion for the solar industry is in the south and southwest US and emerging markets. 

These are typically much warmer climates than FSLR is used to working in.  And FSLR’s products have shown a tendency to rapidly degrade in hot environments. 

If FSLR’s products don’t work in the hot environment where the future of the industry is going, they don’t have much hope of surviving.

If you think the bulls are right, take a look at buying the FSLR March 2013 $33 calls for around $1.00.

If you think the bears are right, take a look at buying the FSLR March 2013 $16.00 puts for around $1.00.

Good Investing,

Corey Williams

Tags: , , ,

Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.