I mentioned in the Weekly Wrap on Sunday night that I was watching First Solar (FSLR, $137.68, up $12.84) as a possible trade. I watched the March 150 calls (HJQCJ, $7.40, up $2.50) open at $5.20 and I wanted to jump on them if they got below $5 but their earnings announcement was to tough to call. The water was too dangerous for us to even stick our toes in it.
Not that I didn’t think they would report good earnings, they did as profits doubled for the quarter, but because First Solar is one stock that has a history of mixed results after reporting earnings. As you can see, the stock had a great day, rising over 10%, and the options ended the day for a 50% gain. That was in anticipation of good earnings.
However, First Solar is getting crushed in after-hours trading. The stock is down $18 to $119. If you had held those calls after the close, you could be in big trouble if things stay the same when the opening bell rings on Wednesday. This is preciously why I stayed away from the trade. Yeah, a straddle or strangle option trade may have worked but I just didn’t “feel” the trade. There will come a time to trade First Solar but lets wait until the dust settles with this one.
Also, with the Dow rising all day and really taking off when Bernanke spoke, it was a no-brainer to close the Dow Jones Industrial Average Index (DJX, $73.51, up $2.36) trade. I have been warning of a “snap-back” rally and although it wasn’t a huge one, the Dow still managed a 3% gain. Those kind of gains in a stock or ETF can have an adverse effect if you are in an option trade and the stock is going the wrong way on you.
Having said that, we had stops in place for the trade at $3.85 on the March 75 puts (DJXOW, $4.10, down $1.15). The stop could have been raised or the trade should have been closed altogether as the rise in the Dow was becoming apparent. The puts opened at $5.10 and you could have protected your profits at $4.50 or higher. The trade was profiled at $3.10.
The March 74 puts (DJXOV, $3.00, down $1.80) had a stop of $3.25 and were profiled last Wednesday as well at $2.75. These put options opened at $4.25 and hit a high of $4.40. If you got out at $4.00 or better, you got a 50% return.