Tuesday, November 27, 2012

FSLR: Sunny side up

First Solar Inc. (FSLR) broke up its high of the last 55 days, creating a bull signal under my trading rules. The price has been trading an ascending triangle since late August.

Volume today was about triple the recent average, a sign of heavy momentum behind the move.

First Solar has been a huge disappointment the past two years for those who trade on stories rather than charts. From a high of $175.45 in February 2011, the price plummeted to a low of $11.43 last June.

It's an oft-told tale: Hop on the Next Big Thing too early, and it breaks your heart.

So I'm not an ethusiast about FSLR because it's clean energy and sunshiny and new tech and all of that. It's a breakout on the chart that met my rules.

The momentum leading up to the breakout was somewhat on the low side, with a trend score of 0.74. I'm more confident with a score of 2.0 or better, but a low score isn't a deal killer.

Very briefly, since we're near today's close:

Analysts hate this stock; the enthusiasm rating is a negative 75%.

Return on equity is 10%, which is respectable, and long-term debt is low, at 14% of equity.

Institutions own 72%, and the price is way cheap. It takes just 75 cents in stock to control a dollar in sales.

I'll skip the options analysis except to say that the selection was sufficiently liquid to meet my needs. Implied volatility is very high at 72%.

First Solar next publishes earnings on Feb. 25.

Decision for my account: I took the trade, structuring the initial position as a bull put options spread, short the $24 put expiring in December and long the $23 put. This puts my break-even point at $22.99, which, thanks to the high volatility, is below my standard stop/loss at $23.58. The potential yield on the position is 31%.

If the price continues to rise, triggering additions, I'll buy long calls expiring in March, with a delta of around 70.


My trading rules can be read here.

And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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