First Solar: The Definition of a Short Squeeze

Tickers in this article: FSLR

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Lindsey: Many investors have opted to avoid the solar manufacturers as the industry rationalized (with a handful of manufactures going bankrupt) as prices fell. The Chinese competition has always been fierce, given their cost advantage, but if FSLR increases efficiencies and reduce costs like management laid out in their presentation today, the story might not be over for this company. Not only that, those Chinese competitors aren't getting the fat subsidies from the government they once did. This all makes FSLR's survival more likely.

There is the concern that today's guidance bump was mainly due to the recognition of the massive California power plant this year. Our friend Glenn Williams over at RealMoney, argues that the time for solar power is upon us. While he sees more opportunity in the solar power producers, I think that the manufacturers should also benefit from the proliferation of solar power plants. Of course, the competition among manufacturers will remain tough, but the fact FSLR will reduce production costs by over 40% by 2017 will certainly benefit the company.

In addition, FSLR has a solid balance sheet which will help support further investment in technology, innovation and cost reductions.

FSLR now expects 2013 net sales of $3.8 billion to $4 billion and EPS of $4.00-$4.50, excluding one-time items. That compares with analysts' estimates of $3.1 billion in sales and EPS of $3.51.

Bottom line, it probably makes sense to let the stock settle and shake out all the shorts before getting involved. If the shares get back to the $20s, it might be worth a look.

Mark: First Solar (FSLR) is soaring today. The stock hit a new 52-week high of $41 at mid-day, came down a bit but headed back toward that high. Management held a meeting with analysts today and provided 2013 guidance that was significantly better than what the street was expecting.

FSLR is the definition of a short squeeze. This is one of the most heavily shorted stocks out there, with 30% of the float sold short. Today, those shorts are being crushed, which is why the stock rally continues. That will end at some point, and the IV will come in as well. This type of movement might get one more day out of it. Then IV will suck out, followed by the stock.

Trades: Sell to open FSLR April 41 calls at $1.65 and buy to open FSLR April 45 calls for $0.63.

Mark can be followed on Twitter at twitter.com/OptionPit.

Lindsey can be followed on Twitter at twitter.com/lindseycbell

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