Strategy: Put Spread
Buffer to strike: 13.09%
Max risk: 4.5% of account
Price at entry: 87.83
Short strike: 59.5 @ +$0.96
Long strike: 55 @ -$0.45
Min contracts: 1
Company description: First Solar is a large solar energy technology producer which sells solar energy modules around the world.
Implied volatility and probability: At the time of trade entry implied volatility is at 55% for FSLR with a probability of success just over 84% at the 59.5 strike level.
Support and resistance: The main support level is being tested now at the 66.5 level, the next support level will be at about the 60 area. The stock has also been making higher highs and higher lows over the last few months and hasn’t really been affected by the fall in oil prices.
Exit strategy: So the plan with credit spreads is always to let the trade expire worthless thereby making 100% of the returns on the credit created an entry. So If all goes to plan my view is that this stock will bounce off the current $66 support and create a higher high and higher low before reaching expiry. However, nothing is 100% in trading so my exit mid month will be if the $60 support is broken and the trade closes below this level we will then close it out.
News and thoughts: Renewable energy is a new one to me, I looked into it’s relationship with oil (CL1!) and it doesn’t really seem to be worried about it. The long term view is that renewable energy stocks will one day overtake oil stocks as the new source of energy in the world how ever this is extremely long term. In the short term, lower oil prices does mean solar energy is less attractive but in the current market FSLR doesn’t seem to be too worried about the recent fall in oil prices and is actually on a bullish trend right now. Nothing too interesting has shown up in the news that is specific to FSLR only a few things about renewable energy as a whole which has risen up recently I suspect because of all the oil price action lately. Either way, at least for now oil seems to be stabilising which should mean general stability in the energy sector.
With regard to First Solar in general as a company, it seems to be running a different business model to it’s competitors where it generates energy and then sells it off instead of selling the panels to retail customers. Solar energy is often affected by government policy like rebates and what not for consumers to have panels installed on their homes which can make solar energy stocks a little volatile. However, FSLR has a much more stable business model and has been crushing it’s competition as a result.
UPDATE 6/4/2016: FSLR has taken a dive today, this was due to the company executives refusing to release their 2017 financial reports. The general sentiment seems to be that it is over sold though. It’s fallen below the initial 66 strike down to 62 about 7-8% off it’s highs which is a big move. The cost of the trade to exit isn’t too high though and thanks to the protection of the long put I’m happy to hold it and see if it bounces off the 60 level. If the stock closes below the 60 level then I’ll have to close it out, according to my exit plan.
UPDATE 13/04/2016: FSLR seems to be holding the 60 level with 3 trading days left on the calendar also there was recent news that saudi arabia and russia were going to try and come to a deal on restricting oil production. This sort of news always comes around and stirs up the oil market then dissipates after a while and the price goes back to normal but for the short term this positive oil news as well as the support level holding out seems to indicate that the trade will hold out until expiry. Still keeping watch though.
UPDATE 14/4/2016: The price on this position has bounced off the $60 support and looks to me moving up for the next few days at least. Still monitoring closely but for now it looks like its going in my favor.
CLOSE 22/04/2016: Held this trade and the 59.5 strike held too, the past few trades have proven to show that the strikes I’ve taken to be key support or resistance levels. Maybe there’s something to this. Maybe I should be searching for a monthly and then buying a straight out call or put at that level. I’ll keep trading this strategy and see how we go.