Subs: Earnings Trade for FSLR

• stevenplace
• July 23rd, 2009

I mentioned this trade in yesterday’s live video — FSLR. We’re going to be selling 2 Iron condors on the assumption that it will stay within this range for the next month.

SELL -2 IRON CONDOR FSLR 100 AUG 09 190/195/140/135 CALL/PUT @1.90 LMT

You can get a better fill if you leg into the trade by selling 140/135 put spreads and a 190/195 call spreads separately. There’s less chance of getting screwed by the market makers.

So we’re risking 620 to make 380. We make money if FSLR stays within 191 and 138. There are clear support and resistance levels to help support the rationale for the trade.

I’m putting this trade on because the volatility in the options is still quite high relative to what we’ve seen in the rest of the market. That is most likely due to the earnings coming up (yes, this is an earnings play) and they had the huge gap in earnings last quarter.

So this trade is very similar to the RIMM earnings play we did in that the quarter before there was a huge gap and people were expecting something similar, except the volatility environment has changed, and vol effectively has collapsed everywhere else.

The stock recently found support at 140– we are assuming that it will hold through August. We also have that nice range from May-Jun that will provide price resistance. So the condor matches up with the technical rationale behind the play. The grey area on the right shows our range of profitability– I guess I could have made it a nicer color.

So this is a slightly bullish play but bearish on volatility.

In terms of stops, we’re using the full 620 as risk, so no stops as of now. We may manage the position if it goes agaisnt us sharply by buying puts/calls to hedge against our gamma risk, so keep that in the back of your mind as a contingency.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus