This Week's Best Short Squeeze Options Trade

First Solar FSLR is in the midst of a likely short squeeze, which is skyrocketing the stock. Once the squeeze is over, shares should fall back to relative congestion support.

So today, let’s place a trade on First Solar against the current trade, but give the chart some time to develop by setting the expiration at least 60 days to deliver results.

Here’s how best to do it.

First Solar’s resistance zone currently sits around $200, but with all this market uncertainty, trading could be choppy in the summer months. Support sits near $155, which is where we’ll put our middle strike.

The way to play this is with a long put butterfly, a combination of a long put spread, and a short put spread that share the same short strike and same expiration date. Though this kind of trade is often described as “delta neutral,” it certainly delivers profit if price action fades as expected. 

• Buy to open 1 FSLR 15 Aug 175 puts 
• Sell to open 2 FSLR 15 Aug 155 puts 
• Buy to open 1 FSLR 15 Aug 135 puts 

Set an alert for prices near the middle strike so that you are very aware of the motion into the middle strike, as this is where the maximum profit will engage into expiration. You will also notice that price action is less sensitive to fluctuation the further we are from expiration. 

This long-put butterfly currently has a debit of $1.55, which represents the total risk incurred in the trade. The breakeven price of the stock at expiration on this trade is $173.45, less commissions.

The highest potential profit is $20 (the distance between $175 and $155), less the cost of the debt incurred by buying the call butterfly, so $20 – $1.55 = $18.45 less commissions.

It is extremely rare to collect all this premium in this kind of butterfly. Consider price action information to drive your risk and profit parameters.

This strategy provides several ways to exit, but I will discuss the main two:

1. Sell the put butterfly when the profit goal moves into your target parameters, particularly once the middle strike is tested near the expiration time. I often look for an 80% to 200% return for these types of put butterflies, but the maximum profit potential is much greater.
2. To sell the put butterfly when your loss threshold is breached. Customarily, this is 50% for me. 

More advanced traders might consider rolling the short strikes down over time if First Solar’s price continues to fall.

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