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Thursday, March 30, 2023


Options On Cree, Inc. Light Up Ahead Of Earnings After The Close


Today’s tickers: CREE, AKS & SHLD

CREE – Cree, Inc. – U.S. stocks are in rally mode today as better-than-expected economic data out of China seemed to trump concerns following the myriad of downgrades of euro-zone states announced by Standard & Poor’s at the end of last week. Shares in Cree, Inc., which reports second-quarter earnings after the bell this afternoon, joined in on the broad market rally, rising 3.5% to $23.70 by 1:00 PM in New York. A sizable put spread established in the February expiry this morning may at first glance appear to be a bearish bet on the name. However, the purchase of stock tied to the options play suggests one strategist is cautiously optimism on the maker of LED lighting products ahead of earnings. It looks like the trader purchased approximately 123,293 shares of the underlying at $23.5279, and purchased a 5,900-lot Feb. $18/$22 put spread for a net premium of $0.99 per contract. The combination of long stock and debit put spread positions the trader to make money on the upside if shares in Cree continue to rally, while also providing downside protection in the event of a pullback through February expiration.

AKS – AK Steel Holding Corp. – Shares in the steel producer are up 2.0% at $9.29 this morning, one week before the Company is scheduled to reveal its performance in the fourth quarter. AK Steel was cut to ‘Hold’ from ‘Buy’ with a revised target share price of $10.00 from $13.00 at Deutsche Bank today. Put volume on the stock jumped after one strategist initiated a sizable one-by-two ratio spread in the March expiry. The trade may represent an outright bearish look at the stock by an investor expecting limited declines in the shares in the next couple of months, or a protective stance to hedge a long stock position through expiration. The investor appears to have established the position at even, buying 4,000 puts at the Mar. $8.0 strike and selling 8,000 puts at the lower Mar. $7.0 strike. Profits or downside protection on the position kick in if shares in AKS drop 13.9% to breach the effective breakeven price of $8.00, while maximum potential profits of $1.00 are available to the trader should shares plunge 24.6% to settle at $7.00 at expiration in March.

SHLD – Sears Holdings Corp. – The rumor mill sent shares in Sears Holdings Corp. up sharply today as speculation the retailer may seek to be taken private pushed the stock up as much as 15.6% to $38.80 in the first half of the session. Options on Sears are more active than usual amid the chatter, with traders exchanging nearly three calls on the stock for each single put option in play. Shares are well off their highs as of 12:30 PM in New York, though the stock continues to trade up 8.3% at $36.35. Trading traffic is heaviest in the front month, but the largest-volume transaction on SHLD was initiated in the Jan. 2013 expiry. The 10,000-lot Jan. 2013 $45/$55 call spread was purchased at a net premium of $3.00 per contract, and accounts for roughly one-third of total options volume generated on Sears thus far today. The investor responsible for the transaction could be positioning for continued bullish movement in the price of the underlying over the next year, or may be hedging a short position in the shares to play out a bearish outlook on the department store operator through January 2013 expiration.


Caitlin Duffy

Equity Options Analyst

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