$CREE calls light up with gains

Bullish option traders more than doubled their money in Cree today.

On March 6, Investitute’s market scanners identified the purchase of 5,000 May $44 calls for $1.40 to $1.95 with shares at $40.46. This was clearly fresh buying, as open interest in the strike was a mere 12 contracts before the activity appeared. Investitute’s co-founder Jon Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for $3.30 today, about 2.5 times their original purchase price. The stock rose 7.9% in the same time frame, showing how quickly options can far outpace gains in their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

CREE was up 1.38% to $43.21 today. Deutsche Bank raised its price target on the LED manufacturer to $52 from $45 this morning.