2 Stocks Plummeting as the Sun Sets on Solar

First Solar (FSLR) and Enphase Energy (ENPH) shares are plummeting, with FSLR down 19.5% and ENPH down 23.9%, after the Senate's spending bill maintained cuts to solar and wind tax credits, phasing out renewable energy incentives by 2028. Options activity has surged on both stocks, with traders targeting the July 185 call for FSLR and the June 32 put for ENPH, reflecting bearish sentiment amid the policy shift.

Analysis

The U.S. Senate's proposed spending bill, which maintains cuts to solar and wind tax credits and plans a full phase-out of these renewable energy incentives by 2028, has triggered a significant sell-off in the alternative energy sector. First Solar Inc. (FSLR) shares plummeted 19.5% to $141, marking its worst single-session percentage loss since December 2011 and reversing a recent series of weekly gains that failed to breach its 200-day moving average; year-over-year, FSLR is down 45.6%. Similarly, Enphase Energy Inc. (ENPH) shares fell 23.9% to $34.97, reaching five-year lows and on track for its worst day since April 2023, with a 70.8% year-over-year decline, consistently forming lower lows since its August 26 annual peak of $130.08. This legislative development has fueled a surge in options trading for both companies. FSLR saw options volume reach six times its typical level, with 48,000 calls and 30,000 puts exchanged; notable activity included new positions being bought to open at the July 150 call, while the July 185 call was most popular. ENPH experienced an eightfold increase in average intraday options volume, with 39,000 calls and 44,000 puts traded, and new positions being bought to open at the most active June 32 put. The market sentiment is extremely negative, underscored by the sharp stock declines and the specific directional bets in the options market, indicating significant investor concern over the future profitability and growth prospects of these solar energy firms without the current tax incentive structure.

Key Decisions for Investors

• Investors should exercise extreme caution with FSLR and ENPH, recognizing the severe negative impact of potential tax credit reductions on their financial outlook and the deeply bearish market sentiment.
• Monitor legislative proceedings closely, as any modification to the proposed phase-out of renewable energy incentives could significantly alter the investment thesis for these stocks.
• Given the substantial increase in options volume and specific contract activity (FSLR calls, ENPH puts), investors might consider hedging strategies or acknowledge the high volatility and speculative interest surrounding these names, while noting the contrarian call buying in FSLR despite the price drop.