Option Spread Idea for Cree, Inc. (CREE)

02/23/2010 12:01 am EST


Cree, Inc. (CREE) has been in a parabolic run from $18 to $67 since March of 2009, reaching levels not seen since the dotcom meltdown of 2000. The advanced semiconductor manufacturer sports a trailing price-to-earnings (P/E) multiple over 90 and may be due for a pause before it continues its upward trajectory.

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This short bear call spread can achieve a 37% return on risk if the stock stays below $70 through April options expiration.

CREE Credit Spread Trade Details

CREE is currently trading around $66.56, up about 0.5% as of yesterday.

Credit Spread/Bear Call Spread

  • Sell the April 70 call
  • Buy the April 75 call
  • Net credit of $1.35 or better per spread

Profit/Loss Details

Maximum Profit: $1.35 (the credit collected). This excludes commissions, though exit commissions will not be required if both calls expire worthless.

Maximum Risk: $3.65 (the difference between strikes minus the credit collected). Reward on risk is approximately 37% in 53 days.

Breakeven: $71.35 (the strike of the lower call plus the premium collected).

By the Staff at ONN.tv

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