Monday, December 6, 2010

First Solar (FSLR) - Calendar Spread on Two Good Vol Levels

FSLR is trading $131.55, up 0.4% with IV30™ up 3.2%. The LIVEVOL™ Pro Summary is below.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

We can see how the front month is elevated to the back.  Now we can turn to the Charts Tab (below), vol chart only. IV30™ - red vs HV20™ - blue vs HV180™ - pink.

I've highlighted the Dec vol and the Jan vol in the chart with small yellow lines. Here's a breakdown of the vols:

Dec IV: 53.01
HV180™: 46.82
IV30™: 44.74
HV20™: 42.90
Jan IV: 42.88

Note how Dec vol on it's own feels like a sale and Jan vol on it's own feels like a purchase. Together, they make a nice little trade.

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
1. Sell the Dec 130 straddle @ $9.70 (53 vol).
Buy the Jan 130 straddle for $16.00 (43 vol).
Pay $6.30.

2. Sell the Dec 125/135 strangle @ $5.50 (53 vol).
Buy the Jan 125/135 strangle for $13.60 (43 vol).
Pay $8.10.

3. Mismatch the strikes to try to pay less in the spread or sell 2x to 1x purchase.

4. Do just one side (purchase or sell).

5. Do nothing. $130 solar stocks are risky...

This is trade analysis, not a recommendation.

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