Today’s tickers: FSLR, DBC, CDE & SNDK
FSLR - First Solar, Inc. – Put options are active on the world’s largest maker of thin-film solar modules this morning, with shares in the Tempe, Arizona-based company falling as much as 8.35% to touch an intraday low of $66.23. Shares fell after analysts at Cantor Fitzgerald lowered their 2011 EPS estimates for First Solar, cut their target share price to $55.00 from $88.00, and reiterated a ‘Sell’ rating on the stock. A debit put spread initiated in the December contract may yield maximum potential profits to one bearish trader if shares in FSLR drop to $55.00 at expiration. It looks like the trader purchased 2,000 in-the-money puts at the Dec. $70 strike for an average premium of $11.50 each, and sold the same number of puts at the lower Dec. $55 strike at an average premium of $4.83 apiece. Net premium paid to initiate the spread amounts to $6.67 per contract. The investor profits at expiration in December if shares in First Solar fall 4.4% off today’s low of $66.23 to breach the effective breakeven point on the spread at $63.33. Maximum potential profits of $8.33 per contract are available to the trader should shares plunge 16.95% to trade below $55.00 at December expiration. Options implied volatility on the stock is up 10.05% at 85.13% as of 12:30 pm EDT.
DBC - PowerShares DB Commodity Index Tracking Fund – Shares in the PowerShares DB Commodity Index Tracking Fund, an ETF that tracks the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return, are down slightly by 0.20% to stand at $27.05 this morning. The price of the underlying has fallen 10.5% since the start of September, but options activity on the fund today suggests at least one strategist may benefit from additional declines through the end of the year. The Index tracked by the ETF reflects the performance of certain commodities. The commodities comprising the Index are WTI Crude, Brent Crude, Heating Oil, RBOB Gasoline, Natural Gas, Gold, Silver, Aluminum, Zinc and Copper.
It looks like the trader purchased a large chunk of deep out-of-the-money put options in the January 2012 contract to position for shares in DBC and commodities prices to continue to decline heading into 2012. More than 10,600 puts changed hands at the Jan. 2012 $20 strike against previously existing open interest of just 296 contracts. The majority of the option contracts appear to have been purchased by one trader roughly 10 minutes into the session for an average premium of $0.25 a-pop. The value of the puts may increase in value should the commodities represented in the Index continue to weigh on the ETF’s share price through expiration.
Shares in ETFs tracking Gold (GLD) and Silver (SLV) prices, for example, have fallen around 13.0% and 25.0%, respectively, since the start of September. Further signs global growth is slowing could add downward pressure on commodities prices and the value of shares in the DBC, and increase premium on the deep out-of-the-money puts purchased on the fund this morning. The put buyer may be placing an outright bearish bet on the performance of the ETF through Jan. 2012, or could be investing in downside protection to hedge long exposure to the fund or commodities represented by the underlying index.
CDE - Coeur D’Alene Mines Corp. – Coeur D’Alene Mines Corp.’s shares may resist above $22.00 through October expiration by the looks of put selling initiated on the silver and gold mining company this morning. Shares in CDE are currently down 2.0% at $22.79 in early-afternoon trade, but the stock has dropped roughly 26.0% in the past few weeks. It looks like one investor sold approximately 3,600 puts on Coeur to pocket premium of $1.00 per contract. The trader walks away with the full amount of premium at expiration next month as long as the price of the underlying stock exceeds $22.00. Last week shares in the mining company slipped to a six-month low of $21.84, but excluding that, have traded at or above $22.00 since November 2010. The short put position indicates the trader may have stock in CDE put to him at $22.00 a share in the event that the option contracts land in-the-money at expiration. Premium of $1.00 per contract received on the sale of the options insulates the investor from losses on the downside, but such protection is maxed out, and gives way to losses, if the stock trades beneath the lower breakeven price of $21.00.
SNDK - SanDisk Corp. – The manufacturer of data storage products and solutions reports third-quarter earnings after the final bell on October 20, one day before October contract calls and puts are set to expire. Sizable prints in the front month this morning suggest one trader may profit in the event that SanDisk’s shares decline substantially post earnings. The stock is down 1.4% today at $42.63 as of 1:00 pm in New York. It looks like the investor responsible for most of the volume in SNDK options purchased roughly 7,000 puts at the Oct. $40 strike for an average premium of $1.33 each, and sold around the same number of puts at the lower Oct. $37 strike at an average premium of $0.63 apiece. The trader paid an average net premium of $0.70 per contract on the spread, which prepares him to make money should the price of the underlying drop 7.8% to breach the average breakeven point on the spread at $39.30 at expiration. Maximum potential profits of $2.30 per contract are available to the investor should shares in SanDisk tumble 13.2% to trade below $37.00. Shares in SNDK last traded below $37.00 back on September 7, a few weeks after the stock touched a new 52-week low of $32.24 in August.
Caitlin Duffy
Equity Options Analyst
