Midday Tuesday, JPMorgan (NYSE: JPM) turned a bit cloudy on solar-power stocks, saying the business could face oversupply risk in the second half of the year and increased competition from wind-power companies. JP Morgan also downgraded two of the major names in the sector, lowering its rating on Evergreen Solar (NASDAQ: ESLR) to neutral from overweight and cutting First Solar (NASDAQ: FSLR) to underweight from neutral. FSLR closed at $108.64 on Monday but fell roughly 3% in Tuesday’s action as a result of this downgrade.

While brokerage houses are limited to ratings that effectively correspond to “buy,” “hold,” or “sell,” options players have a broad arsenal of strategies that can be customized for a variety of purposes. There are strategies that can work for traders whether they expect the underlying stock to rally, decline, or even if they think it is likely to do nothing at all. Below are two ways – one bearish, one bullish – that can be used by investors who follow First Solar shares. These are not buy-sell-hold recommendations, just potential strategies for self-directed traders.

Bearish Option Strategy:  Broken-Wing Put Butterfly

Traders who agree with JP Morgan’s cautious outlook could consider a broken wing put butterfly, which consists of two spread trades executed simultaneously. First is a long put spread, as the June 100/115 can be bought for a debit of $8.70 by selling the 100 put and buying the 115 put. Second is a short put spread, selling the June 100 put and buying the June 95 put for a net credit of $2.00. The overall debit for the four-legged trade is $6.70, which is also the maximum potential loss for the strategy. The maximum gain is $8.30, which is achieved if JPM closes right at 100 at June expiration. The butterfly will be profitable at expiration if JPM is trading anywhere below $108.30.  Anywhere below 95, a modest profit of $3.30 is earned.

Bullish Option Strategy:  Bull Call Spread

If you remain a fan of FSLR despite today’s remarks from JPM, consider a bullish call spread.  The June 115/120 spread can be traded by buying the 115 strike, selling the 120 strike for an overall net debit of approximately $1.60. Call spread buyers have risk to lose 100% of their initial investment, but can net a maximum profit equal to the difference between strike prices minus the premium paid (for this example, maximum profit is $3.40, making the return on risk 212%). This trade will be profitable at expiration if the stock is trading above $116.60.

Do you have a sunny outlook on First Solar or do JP Morgan’s concerns make sense?

You decide!