Why Options Traders Need to Give Cree Stock a Look

Cree, Inc. shares could bounce off their 160- and 200-day moving averages

Alex Eppstein
Mar 27, 2017 at 12:37 PM
facebook twitter linkedin


It may be a good time to consider Cree, Inc. (NASDAQ:CREE) stock options. As we'll outline below, CREE shares are currently flirting with a pair of historically supportive trendlines, while the stock's short-term options can be purchased at a relative discount.

Starting on the charts, CREE recently touched its 160- and 200-day moving averages, which are more or less level at the moment. After prior occurrences in the past three years, the LED stock has been positive 100% of the time after this signal, looking out one week and one month. The shares sport an average five-day post-signal gain of 2%, and going out to 21 sessions, that average return increases to 4.6%, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. In other words, CREE stock could be on the verge of a bounce, if past is prologue. At last check, CREE is down 1% at $26.85.

Keeping that in mind, CREE's short-term stock options are currently well-priced, from a volatility perspective. The shares sport a Schaeffer's Volatility Index (SVI) of 29%, below 90% of all readings from the past year. Moreover, the stock's Schaeffer's Volatility Scorecard (SVS) of 88 suggests the market has tended to underprice short-term CREE options in the past year, relative to the stock's actual moves.

From a contrarian perspective, the shares could benefit from unwinding pessimism on Wall Street. For one, 11 of 13 analysts rate CREE stock a tepid "hold," leaving room for upgrades. For another, 9.3% of the equity's float is sold short, which translates into three weeks' worth of pent-up buying activity, at the stock's average daily trading volume.

About the only place where optimism is detected on CREE shares is among options traders. The stock has seen nearly 6,000 calls bought to open over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- about 100 times the puts that have been purchased over the same time frame. Not to mention, CREE's Schaeffer's put/call open interest ratio (SOIR) sits at an annual low of 0.25. Whether Cree, Inc. options traders have picked up calls as bullish bets is another question. After all, with short interest still high, it's possible short sellers are driving the call activity, purchasing out-of-the-money options as an upside hedge.

Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter