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Trader adjusts protection on Cree

David Russell (david.russell@optionmonster.com)

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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