Semiconductor manufacturer Wolfspeed (WOLF) is down over 80% in the past year, amid restructuring and job cuts. One trader sees further downside in the weeks ahead.
That’s based on the December 20 $5 puts. With 31 days until expiration, 9,200 contracts traded compared to a prior open interest of 221, for a 42-fold rise in volume on the trade. The buyer of the puts paid $0.28 to make the bearish bet.
Wolfspeed recently traded for about $6.80, meaning shares would need to decline by $1.80, or about 27%, for the option to move in-the-money. Shares are at a 52-week low, having declined over 32% in the past trading week.
Wolfspeed has been in a massive decline, losing over $700 million in the last 12 months. Plus, the company’s market cap is now down under $1 billion, with over $5 billion in debt on the balance sheet, a level that puts investors at risk.
Action to take: Wolfspeed shares are firmly heading down, and investors who haven’t gotten out of the stock need to do so. The move lower is indicative of significant trouble, and it’s too early to tell if that will improve or not.
For traders, the December 20 $5 puts are well positioned for a further decline, which could make a good hedge against today’s ebullient markets. Traders can likely see high double-digit returns or better.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.