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Option Brief: Cree, Inc. (NASDAQ:CREE) has surrendered 20% since skimming the $75.98 level -- just two pennies from a multi-year peak -- in October, and closed yesterday beneath $60 for the first time since Feb. 10. Nevertheless, option traders remain confident in the semiconductor specialist, and picked up weekly calls to gamble on a rebound over the next few sessions.
During the course of Monday's session, CREE saw roughly 9,200 calls cross the tape -- more than double the number of puts traded, and representing a 49% mark-up to the stock's average daily call volume. Underscoring the escalating demand for short-term contracts, the security's 30-day at-the-money implied volatility (IV) rose 6.7% to 37.8%.
Most popular was the weekly 3/7 60-strike call, where close to 1,300 contracts changed hands, primarily at the ask price. IV soared nearly 8 percentage points, and open interest jumped overnight, confirming newly bought bullish bets. By purchasing the calls at a volume-weighted average price (VWAP) of $1.00, the traders expect CREE to climb back atop $61 (strike plus VWAP) by Friday's close, when the options expire. At last check, the calls are again in the money, with CREE up 2.3% at $60.82.
Meanwhile, risk is limited to the initial premium paid for the calls -- which is relatively slim, considering the equity's Schaeffer's Volatility Index (SVI) of 34% sits just 9 percentage points from an annual low. In other words, Cree, Inc.'s (NASDAQ:CREE) short-term contracts are attractively priced right now, relatively speaking.