018. PIGGISH PLAY - Solar StrangleThe 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.
AMEX:TAN
NASDAQ:RUN
NASDAQ:FSLR
NASDAQ:NDX SPCFD:SPX
