First Solar (FSLR): We Don’t Need No Stinking Loans – Play for Reversal in Beaten Down Stock

by Dan September 23, 2011 12:09 pm • Commentary

First Solar $67.80

News flow couldn’t be worse, the solar panel manufacturer will not receive a $1.9 billion loan guarantee for a solar energy project. Crude Oil prices are falling and there are hearings going on in Washington on the bankruptcy and loss of a government loan by a competitor.

But, stock is down more than 60% on the year. Short Interest is more than a quarter of the float, and the PE is now less than 10. It’s 50 Day moving average is around 100, nearly 40 dollars higher. On the Street, there are 22 Buys, 15 Holds and 7 Sells with an average 12 month price target of 134.

Bullish Case: It may be a good point to take a contrarian bullish shot with a potential 4 -1 payout. If this stock were to find a bottom soon, any upward movement could squeeze a lot of the shorts out of the stock and the stock could make a quick move back towards its moving averages.

Bearish Case: See above, the news cycle is killing this stock and it’s been a favorite of shorts.


FSLR (67.80) Buy the Nov 80-95 Call Spread for 2.70

Buy Nov 80 Call for 4.20

Sell Nov 95 Call at 1.50

Breakeven on Expiration

Below 80 lose 2.70

Above 82.70 make money

At 95 maximum profit of 12.30


Trade Management:

This is not a stock that you want to chase intraday in order to put on a trade. CC and I started to discuss this trade this morning and as we were discussing it, the stock ran 7 dollars on us. Let the stock come to you intraday. It’s not uncommon for it to finish a run then come in 4 dollars in the next 20 minutes. This is not a stock we would feel comfortable being long the underlying. We do feel that that the risk reward of an upside call spread is worth the shot, but know that you could easily lose all of your bet.