Stocks quoted in this article:
Cree, Inc. (NASDAQ:CREE) has spiked 11.4% today to trade at $67.06, after Canaccord Genuity upgraded the stock to "buy" from "hold," and raised its price target to $80 from $65. This positive price action hasn't been lost on option bulls, as approximately 15,000 calls have crossed the tape thus far. This is more than five times the norm, and almost double the number of puts exchanged. Additionally, the security's 30-day, at-the-money implied volatility has climbed 2.2 percentage points to sit at 42.4%.
Garnering notable attention is the October 70 strike, which has seen about 1,500 calls change hands for a volume-weighted average price (VWAP) of $0.65. Since almost two-thirds of the contracts traded at the ask price -- and today's volume has exceeded current open interest levels -- it's likely that new bullish positions have been created here.
In this scenario, bought to open, the speculators will begin to profit with each step CREE takes north of breakeven at $70.65 (strike price plus the VWAP) between now and front-month expiration. At the equity's current price, this would entail a rise of 5.3%. However, should the shares stay below the $70 mark through the close on Oct. 18, the most today's call buyers stand to lose is the initial cash outlay.
It's worth noting that short interest on the LED manufacturer spiked by almost 16% during the past two reporting periods, and now makes up 8.5% of the stock's available float. In fact, it would take nearly a week to cover these bearish plays, at CREE's average daily trading volume. In other words, some of today's call players could actually be short sellers looking to hedge their positions with these out-of-the-money, short-term bets.
Today's vote of confidence in Cree, Inc. (NASDAQ:CREE) is understandable, considering the shares have nearly doubled in value this year, even after factoring in a bearish gap in mid-August, which resulted in a single-session loss of 22.3%. Meanwhile, the equity's Schaeffer's Volatility Scorecard of 95 suggests that CREE has tended to make outsized moves on the charts within the past year, relative to what the options market has priced in.
Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis®
perspective, please visit our Trading Floor Blog section.