It appears to me that the hedge funds short this stock, sell their calls and buy their puts.
They know what is coming.
My understanding is that they buy the common and a synthetic short (short call and long put at the same strike). Then they sale the common to drive the price down and increase the value of their short. They can dump a few hundred thousand shares at the open, like they did on 3Oct07, to force a huge gap down. Or they can sell some every day at the open to put pressure on the stock. Remember that the short interest increased by nearly 7m shares in Oct07, so we've seen the sale of 7m shares in Oct07.
They do have the advantage in that they control the timing. I also believe that most other funds managers know what's going on, i.e. they're not fooled by Dorsheimer.
Cree's stock price performed very well in Jan04 and late '04 when the short interest was at the current level. Hopefully the bulls will return when they think Cree has bottomed.
There is certainly no fundamental reason for this stock to behave the way it does.
I agree, but I think the overall market conditions are not good at this time. I think that we're in a correction for tech stocks that was triggered by the crashing financials. The market has been selling AAPL, GOOG, RIMM etc. for the last few sessions. The theory is that a bunch of funds have good profits in these stocks and want to lock in those gains for the year by taking profits. Seeing the financials take a beating made them worry about their profits in non-financial companies. So good tech companies are being sold as the 'talking heads' say avoid financials and buy tech companies with a good international exposure.
Corrections in the last few years have been nasty but short: a 5%-10% fall in just a few days. Hopefully, we're near the end of this one.