Wednesday, April 29, 2009

FSLR Iron Condor Spread

First Solar (FSLR) is reporting earnings after the bell on Wednesday and I wanted to put together an options trade. The stock has been stuck between about 130-160 for most of the last month and it is kissing its 200 day ema today. FSLR usually has mixed results on earnings reactions as you can see here. I don't really have a directional bias on it so I want to look to short an iron condor. The implied volatility is around 80ish which is really low historically on this stock. The stock vol is lower in the mid 60 area. This says that the market simply isn't as volatile as it was 6 months ago so the options market is anticipating smaller moves in FSLR going forward.

Sell the 125/130 put spread and sell the 180/185 call spread in May.

This trade results in a net credit of about $1.60 right now.

Max risk is $3.40 since the width of the strikes in the spreads is 5. Max risk occurs if the stock settles expiration day above 185 or below 125.

Max gain of $1.60 is achieved if FSLR stays within 130-180 in the next two weeks.

So there is roughly a 18% buffer on each side of the market in which you can win. You will want to enter this in the last hour and center your strikes if the stock moves by then.

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