Trader adjusts protection on Cree

optionMONSTER

Cree has been rallying, and one investor doesn't want to see those profits slip away.

optionMONSTER's Depth Charge monitoring system detected the purchase of 11,700 June 46 puts for $4.50 and the sale of an equal number of June 44 puts for $3.46. Volume was below open interest in the 44s, suggesting that an existing position was closed and rolled to the higher strike.

The trader is probably using the options as a protective hedge on a long position in the maker of light-emitting diodes. He or she paid $1.04 to make the adjustment and now has the right to sell shares at $46 instead of $44. (See our Education section for more on how options can be used to insure risks in your portfolio.)

CREE fell 1.37 percent to $45.33 yesterday but is up 48 percent in the last three months. Most of that move followed a better-than-expected earnings report on Jan. 22, when management also issued strong guidance thanks to improving demand.

Nonetheless, the shares are now back near a key level where they gapped lower in March 2011. That could make be leading some traders to think that they're due for a pullback.

Total option volume was quadruple the daily average in the session, with puts outnumbering calls by a bearish 11-to-1 ratio.

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