First Solar, Inc.: It’s Finally Time to Buy FSLR Stock

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Stocks go up and stocks go down. Just ask investors of late in First Solar, Inc. (FSLR). The good news is a potential cycle change could finally be at hand. The even better news for bulls is the use of a modified FSLR collar.

First Solar, Inc.: It’s Finally Time to Buy FSLR Stock

As both a bull and bear over the past year in FSLR, I’ve been pretty spot-on. Most recently in mid-April I made the case for a substantial decline in shares of First Solar stock.

The attached option strategy returned 275% as a bearish vertical expanded from $2 to $7.50 into June expiration.

And now, I’m bullish on First Solar stock. This view flies in the face of conventional wisdom.

Conventional wisdom would typically warn against buying relative weakness and worse yet, buying a solar stock like FSLR just as oil has begun to display increasing signs of a top being in place.

Bottom line though, sector rotations happen all the time. What had been weak turns into strength and vice versa. It’s a ubiquitous trait of the markets.

Second, First Solar and other solar stocks, if you haven’t noticed, are not tethered to the price of oil necessarily.

If you were a believer in this causal relationship between oil and FSLR, 2016’s firmly negative correlation is evidence enough that other factors can, at any given time, be in play.

Lastly, First Solar remains the industry’s largest and best-in-breed play on solar. So, if you’re willing to make this contrarian play, FSLR, along with its strong chart position, looks even more attractive.

FSLR Stock Weekly Chart

071516-fslr-chart
Source: Charts by TradingView

In our last analysis, we discussed how FSLR stock’s breakdown following a good — at face value at least — earnings number and broader market strength was an ominous sign.

The combination hinted of lower prices for First Solar and a possible narrowing of the stock price spread between itself and an already technically bearish peer group.

Since the article, shares of FSLR having fallen from around $60 to the $45 area. The fairly stiff decline in excess of 25% has put shares of First Solar into a decent test of key weekly chart support.

Specifically, it appears to be establishing a triple bottom off a 50% retracement with bullish divergence from an oversold stochastics indicator as shown on the accompanying weekly chart.

At the end of the day, this represents a long opportunity for bulls interested in buying on weakness in anticipation of a new uptrend developing in the weeks and months ahead.

First Solar Bullish Modified Collar

Reviewing the FSLR options board and for likeminded traders willing to consider an intermediate- to longer-term stock position, the Aug $45 put / Sept $55 call hedge combination is attractive.

Currently, with First Solar near $47.25, this trader can buy shares, buy the put to limit risk and partially finance this protection with the sale of a further out, out-of-the-money call for a net price of $48.15.

The hedge adds 90 cents to FSLR stock’s cost basis, but now with protection in place and with earnings due out prior to August expiration, the trader has limited downside risk to $3.15 or 6.5%, while maintaining upside of 14% to the sold $55 call strike.

Bottom line, the reward-to-risk profile for this modified collar can be initiated for better than 2-to-1, and it allows for future adjustments to ride the trend if shares move higher or exit with defined risk, should FSLR’s current bear grow more fierce.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article, but may initiate a position at any time. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/first-solar-finally-buy-fslr-stock/.

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