Large First Solar Option Traders Expect Positive Reaction To Mixed Earnings

First Solar, Inc. FSLR shares traded flat Friday morning after the company reported mixed second-quarter earnings after the close on Thursday. Here’s a look at how several large option traders positioned themselves ahead of Friday’s session.

The Trades

On Thursday, Benzinga Pro subscribers received several options alerts related to an unusually large FSLR option trades. All of the trades involved weekly contracts expiring at the end of the day on Friday.

• At 10:03 a.m. ET, a trader bought 785 First Solar call options with a $70 strike price at the ask price of 97 cents.
• At 10:09 a.m. ET, a trader bought 1,000 First Solar put options with a $63 strike price at the ask price of 53.1 cents.
• At 10:26 a.m. ET, a trader bought 705 First Solar call options with a $65 strike price at the ask price of $4.10.
• At 11:48 a.m. ET, a trader bought 1,000 First Solar call options with a $72 strike price at the ask price of 95.2 cents.
• At 11:54 a.m. ET, a trader bought 984 First Solar put options with a $71.50 strike price at the ask price of $1.081.
• At 12:11 p.m. ET, a trader bought 757 First Solar put options with a $72.50 strike price at the ask price of 73 cents.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the First Solar option trades, they are unlikely to be institutional hedges.

First Solar Headed Higher?

First Solar shares initially traded lower by 3.5% in after-hours trading on Thursday after the company reported a surprise loss in the second quarter and missed consensus revenue estimates. However, the solar giant also reiterated its full-year EPS and revenue guidance, and raised its full-year gross margin and operating income guidance. The numbers suggest First Solar had a difficult second quarter, but the company expects to be running much more efficiently in the quarters ahead.

The stock rebounded to within 0.1% of even during Friday's pre-market session, leaving investors unsure how to play the potentially volatile stock into the close on Friday.

The vast majority of the large option trades on Thursday were call buys at the ask, a bullish positioning heading into earnings. Assuming these trades are not hedges, these traders expect First Solar to continue its rebound into positive territory once trading begins.

Given all of the contracts purchased on Thursday expire on Friday, they were clearly a play on earnings alone. First Solar traders will have to keep monitoring the options market in coming weeks for more insight on where the stock could be headed in the longer-term.

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