Calls light up as $CREE burns shorts

Cree squeezed higher on turnaround hopes today, returning exponential profits on upside option positions.

On Oct. 2, Investitute’s tracking systems detected the purchase of 10,000 November $29 calls for $1.30 with shares at $28.32. Open interest in the strike was a mere 16 contracts before the trades occurred, showing that this was fresh buying.

Those calls traded up to $6.55 this afternoon, 5 times their purchase price. The stock soared 24.4 percent in the same time frame, a large gain but one that was still far below that of its options on a relative basis.

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 surged 16.43 percent to close at $34.16 today after hitting a new 52-week high of $35.46 in afternoon trading. The LED and semiconductor manufacturer, which has an estimated short interest of 17 percent of its float, initially fell after announcing quarterly results last night but reversed sharply after the company’s new CEO spoke of a new strategic plan on a conference call with analysts.

JMP Securities raised its price target on the name to $41 from $29 this morning despite a recommendation from Goldman Sachs to sell the shares.