018. PIGGISH PLAY - Solar Strangle
Updated
The solar space is interesting right now because:
1) It is at a critical technical juncture for a potential break-out from its 10-Year Base
2) Solar companies are very difficult to accurately place value on, which is evidenced by recent polarizing movements (and the lack thereof in some cases)
3) Solid, long-established and fast-growing companies that have received recent positive news (like FSLR) are trading under the grand-line in the top-most chart
4) Riskier, smaller companies like RUN that are the most difficult to accurately value, are trading at an insane premium at the moment and are positioned well above a reasonable price relative to pretty much any indicator used
5) Whenever an entire sector reaches a critical technical juncture that raises a big question, I always come up with the same answer:
Strangle it.
The expected return on strangling these types of make-or-break situations is nearly always positive if the correct positions are taken. This strategy has worked for me countless times, and this particular setup should be no different.
In fact, with such immense disparity in perceived value between companies, rampant volatility throughout the sector, and the particularly precarious position of the global equities market, this strangle should play out beautifully.
Pig Plan:
Buy First Solar Calls: 85 Strike, Expiration 11/20/2020
Buy Sunrun Puts: 60 Strike, Expiration 10/30/2020
I think using the calendar to your advantage will work in this case because Sunrun will either capitulate from the blow-off soon, or it will not. You can also buy more puts for Sunrun for the same amount of capital that you allot to First Solar.
If you've followed me recently, then you know I'm a bearish-pig right now. My bias is toward the short-end, so my plan above does lean the same way.
- SunPig, Inc.
TAN
RUN
FSLR
NDX
SPX
1) It is at a critical technical juncture for a potential break-out from its 10-Year Base
2) Solar companies are very difficult to accurately place value on, which is evidenced by recent polarizing movements (and the lack thereof in some cases)
3) Solid, long-established and fast-growing companies that have received recent positive news (like FSLR) are trading under the grand-line in the top-most chart
4) Riskier, smaller companies like RUN that are the most difficult to accurately value, are trading at an insane premium at the moment and are positioned well above a reasonable price relative to pretty much any indicator used
5) Whenever an entire sector reaches a critical technical juncture that raises a big question, I always come up with the same answer:
Strangle it.
The expected return on strangling these types of make-or-break situations is nearly always positive if the correct positions are taken. This strategy has worked for me countless times, and this particular setup should be no different.
In fact, with such immense disparity in perceived value between companies, rampant volatility throughout the sector, and the particularly precarious position of the global equities market, this strangle should play out beautifully.
Pig Plan:
Buy First Solar Calls: 85 Strike, Expiration 11/20/2020
Buy Sunrun Puts: 60 Strike, Expiration 10/30/2020
I think using the calendar to your advantage will work in this case because Sunrun will either capitulate from the blow-off soon, or it will not. You can also buy more puts for Sunrun for the same amount of capital that you allot to First Solar.
If you've followed me recently, then you know I'm a bearish-pig right now. My bias is toward the short-end, so my plan above does lean the same way.
- SunPig, Inc.
TANRUNFSLRNDXSPXTrade active
Might want to loosen the FSLR calls a bit on Monday if it breaks below 80. Would not touch the Sunrun part of the strangle, though.Maintaining the strangle as is will also work.
So if you're still holding this setup, you can continue making money while doing nothing!
Trade active
Wasn't expecting the strangle to show such a disparity this early on. I am very tempted to take half the long (FSLR) and half the short (RUN), given that the former is up ~16% premarket and the latter is hardly up in a very dangerous scenario.At 94 bucks and a strike of 80 in a market that could reasonably drop >5% today, I don't think I can stomach leaving all that on the table. But to each their own.
Trade closed: target reached
On second thought, I'm actually just going to close the entire position today.I just dont see it getting much better than this given the circumstances.
Clearly FSLR is a great long, especially with a Biden win. I'll go long it the old fashioned way at some point anyway.
Note
Not re-opening this but will urge those who have not sold FSLR options yet to do so sort of soon. The daily candle has formed a brutally huge blow-off top that is so pronounced that I may even short it.Thats why Im a pig and you all should exit 1000% up on both legs.
Good day.
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