Amazon (AMZN), Baidu (BIDU) and now Apollo (APOL) are all NASDAQ 100 names that may have traders wishing they had. I'm referring to buying a non-directional strategy such as a straddle or strangle in front of their respective earnings events.

Holding a protective but potentially expensive long curvature position through the earnings release yielded some very nice profits for those still fresh and recently announced reports. Tonight, another marquee name synonymous with volatility announces its results, First Solar (FSLR).

Option activity sizzled on Tuesday with still one day of trading before First Solar reports Wednesday evening. Volume totaled nearly 28,000 or about three times its daily average of about 12,000. Puts, perhaps influenced by Baidu's amazing 80 point downside opening gap, were favored by 1.37-to-1.00. Most popular by a narrow margin, the OTM November 135 put saw about 2,200 contracts trade, closing at $4.85 on implieds near 74%.

Earnings-related weakness last week from peer SunPower (SPWRA) and a group technically speaking that's mostly been more fizzle than sizzle during the broader market's historic climb, is likely another factor influencing traders into more cautious positioning. The net demand has also aided in the November contract seeing a fairly steep but typical earnings rush above its current and monthly statistical range associated with shares of FSLR.

Figure 1: First Solar (FSLR) IV Historical

Looking above at FSLR's historical implieds over the past two years, it certainly doesn't seem like traders are "rushing" in and getting too frisky with their demand for protective strategies. For its part, the November contract is at 17% of its yearly range. Longer-dated options which are more sensitive per point in shifts to implied volatility are in the single percentage digits of a range that's been as low as about 50% IV to a high approaching 180%.

While premiums are cheap in that context, the associated underlying movement in FSLR in recent months does dictate that prices should be closer to where they currently are than not. Ultimately, too large of a differential between the two would spell trouble for premium bulls when implieds are bid above SV. On the other hand, shares of FSLR are a notorious mover with regards to its earnings. The last year has seen percentage closing results of [7.31.09: -11.04%, -19.16 pts], [4.30.09: +23.49%, +35.62 pts], [2.25.09: -21.81%, -30.03 pts] and [10.30.08: +24.47%, +28.32 pts].

Those powerful moves certainly seem like a nice consistent trend for non-directional premium bulls to attach themselves too. And in conjunction with a technical picture which has seen shares essentially go nowhere since its last report on July while carving out a several week long mostly lateral consolidation or symmetrical triangle, traders likely see this report as the catalyst which breaks FSLR free of its overall tight contraction pattern and moving shares dramatically once more.

Figure 2: First Solar (FSLR) Daily Symmetrical

But, does the excitement in shares spell opportunity consistently for the likes of a strangle and holding it through the event? Here's a sample of what the past year has looked like for the "mostly centered" ATM strangle, using a strike width of 15 points and held through those very same sizzling and fizzling percentage moves in shares of FSLR:

07.31.09: Aug 180 / 165 strangle: $22.35 per spread P&L: -$6.00 @ $16.35 IV Shift: 80% to 54%
04.30.09: May 160 / 145: $15.65 per spread P&L: +$14.20 @ $29.85 IV Shift: 88% to 76%

02.25.09: March 145 / 130: $18.40 per spread P&L: +$7.05 @ 25.45 IV Shift: 90% to 81%

Despite each situation involving well-bid earnings rushes above the current SV levels and associated monthly range, the past three cycles have been overall quite profitable with two larger wins eclipsing the smaller loss. With shares mostly "at strike" at $115.75 in front of the October 2008 report, a 20 point strangle was used.

10.30.08: Nov 125 / 105: $24.55 per spread P&L: $6.40 @ $30.95 IV Shift: 135% to 120s

Looking above and one year ago, a third profit out of the four earnings events was scored. The net result however was the smallest dollar and percentage gainer. In this instance, implieds going into the event were fairly priced relative to FSLR's SV range, but the actual price paid was the steepest in dollar terms and at its highest levels of the four earnings events.

If we go back to the summer of 2008, we're using a 30 point wide strangle. Shares of FSLR were squarely between strikes but at $285, also nearly double in price versus the other periods.

7.31.09: Aug 300 / 270: $27.65 per spread P&L: -$13.15 @ $14.50 IV Shift: 86% to 58%

The less-than-sizzling results from the prior summer certainly put a crimp on this type of positioning. However, netting out the profits of three periods from the two losses and a trader using the illustrated long strangles would still be up in the account by $7.50 per one lot through five earnings events. Using an eyeballed average spread price of $20, we're talking about an 8% return but with a fair amount of variance.

Checking the board after the first ninety minutes of Wednesday's session and the mostly centered Nov 160 / 145 is fetching almost $16.00 per spread with implieds around 75%. The situation most resembles April relative to the option's pricing, as well as the way in which shares are technically coiled. Will history repeat? Premium bulls would certainly like to think so as that was the strangle's best performance bar none, for the small bit of homework done thus far.

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.