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Cree, Inc. (CREE) Traders Eye Additional Upside Ahead

CREE's July 60 call is a popular position today

by 6/24/2013 2:44 PM
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Although Cree, Inc. (NASDAQ:CREE) is following in the bearish footsteps of the broader market, the stock has found support atop the $58 mark. In fact, the equity took a solid bounce off this level in late May, which helped send CREE to a two-year peak of $66.78 on June 19. With the stock finding this foothold once again, one group of speculators is betting on a quick resumption of CREE's withstanding uptrend.

Diving right in... More than half of the 4,477 July 60 calls that have been exchanged today have done so on the ask side. Implied volatility was last seen 3.4 percentage points higher, and only 474 contracts make up open interest here, leaving it safe to assume that a fresh batch of bullish positions is being initiated. In order for these calls to be profitable, CREE must muscle its way north of $61.90 (strike plus volume-weighted average price of $1.90). This breakeven mark sits 5.6% above the equity's current perch at $58.63.

Broadening the sentiment scope reveals a more bearishly skewed bias in CREE's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has grown to 0.69 from its month-ago reading of 0.51. Even more telling, perhaps, this ratio ranks in the 77th percentile of its annual range, indicating puts have been bought to open over calls at an accelerated clip in recent weeks.

The skepticism toward a stock that's tacked on a cool 140% during the past 12 months is witnessed outside of the options pits, as well. Among covering analysts, no fewer than eight out of 17 analysts maintain a "hold" or worse suggestion toward the stock, and the consensus 12-month price target of $58.24 represents a discount to present trading levels. Additionally, 8.6% of the stock's float is sold short, representing more than five sessions' worth of pent-up buying demand.

Should CREE continue to excel on the charts, another round of upbeat analyst attention could spark a short-covering rally.


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