Cree lights up with large call spread
David Russell | firstname.lastname@example.org
optionMONSTER's tracking programs detected the purchase of some 5,000 December 62.50 calls for $8.65 and the sale of an equal number of December 70 calls for $5.40. Volume was more than 5 times open interest at both strikes, indicating that new positions were initiated.
Owning calls lock in the price where the stock can be bought, while selling them obligates the investor to unload shares if a certain level is reached. The combination gives the investor control of the spread between two prices at a low cost.
In this case, the trader paid $3.25 to open the vertical spread and will receive $7.50 if the stock closes at $70 on expiration. That would be a profit of 131 percent on a move of less than 20 percent in the share price. (See our Education section for more on how options can be used to generate leverage.)
CREE rose 0.94 percent to $60.41 yesterday and has rallied more than 75 percent since the beginning of 2013. The company is a member of the light-emitting diodes industry, a small but fast-growing niche within the technology sector.
Total option volume was 7 times greater than average in the session, with calls accounting for more than three-quarters of the total.
(A version of this post appeared on InsideOptions Pro yesterday.)