PEAD Breakout in FSLR

[Steven Place]

After great news and earnings a month ago, the momentum on FSLR has completely stalled out. I’m expecting that momentum to start back up here soon.

This is a variation of a “PEAD” setup, which stands for Post Earnings Announcement Drift. Generally, price will follow the direction of the catalyst, and any further catalysts tend to follow the direction of the current trend.

Which is up.

Here’s the trade:

Buy FSLR Apr 62 Call @1.50 FULL RISK

Simply put, I don’t feel like trying to set a stop here. This trade either works or it doesn’t. By using the call premium as my stop, I don’t have to worry about failed breakdowns and the like. I could see the stock breaking 59.27 support and then reversing higher. I’d rather reduce my size and go full risk here.

If the value of the call rises to 3.00, then sell half of the position.

A value of 3.00 is possible if the stock runs to 63 in a hurry. That’s just above the “obvious” breakout level, so that shouldn’t be a problem to get filled.

[Steven Place]

FSLR finally moved, but unfortunately there was too much time and the premiums wore away so it’s only a small profit.

Either trail a stop at breakeven, or…

sell to close FSLR Apr 62 Call @1.80

Total return: .30 per contract

Return on max risk: 20%

[Author]

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