Add CREE Calls

Plus: Watching WYNN For Puts

By Bryan Bottarelli
Tuesday, August 18, 2009 12:30 PM EDT
Tue, 18 Aug 2009 16:30:00 GMT

PLAY: Buy the CREE September 35 Calls (CQR IG) at or under $1.70, good for the day. Place a protective stop limit at $0.90 and a sniper sell at $2.80.

Dear Bottarelli Research Member,

After yesterday’s intense market sell-off, it’s clear that the bulls received a wake-up call, which basically said that the markets will not move up forever. But today, the bulls are firing right back, saying that they’ll use any market dip to re-establish their long positions. The result is a daily candlestick formation that’s smaller than yesterday’s red tick, but certainly a noteworthy (and impressive) response. See below:

INDU

In response to this dip-buying, I’d like to get positioned to play an upside breakout formation in shares of Cree (CREE – NASDAQ). With operations in Hong Kong, China, the United States, Korea, Japan, Europe, Malaysia, and Taiwan, Cree manufactures semiconductor materials based on silicon carbide (SiC) and gallium nitride (GaN). They also offer light emitting diode (LED) and radio frequency (RF) products, including LED chips, LED components, and LED lighting solutions.

CREE

As you can see from the chart, the stock just hit a new 52-week high, signaling more upside ahead. What’s more, the September call options are very reasonably priced, offering us upside exposure on the cheap. Let’s play today’s dip-buying by adding CREE calls now.

PLAY: Buy the CREE September 35 Calls (CQR IG) at or under $1.70, good for the day. Place a protective stop limit at $0.90 and a sniper sell at $2.80.

At the same time, let’s continue to watch the movements of casino operator Wynn Resorts (WYNN – NASDAQ). After all, the stock jumped from $30.00 in mid-July to $60.00 in mid-August, good for a powerful 100% return in just over a month. In my opinion, this upside move has gotten way ahead of itself, especially since Las Vegas continues to report depressed travel statistics. Over in China, regulatory issues (notably travel restrictions on the number of visitors allowed into Macau) continues to linger. Not only that, but yesterday’s broad-based market sell-off pushed WYNN below its recent trading range. See below:

WYNN

Add it all up, and investing in a stock with a forward P/E ratio of 72.91 that has just rallied 100% in less than a month looks like a dangerous proposition. Therefore, I’d like to use any signs of weakness to jump back into puts. When the timing is right, you’ll be the first to know. Until then, do not make a play.

Also, continue to hold your OIH September 105 Calls (OIH IA). If you entered this position on the dip yesterday, then you’ve already seen a nice return today. If this is the case, please take some of your profits off the table now. For all of you that averaged into this position, continue to hold. The current bid/ask spread is $3.00 to $3.10, just below our average entry price of $3.45. One more up-tick (perhaps triggered by any further hurricane news) could shoot us into the profit zone.

Let’s also watch how the market responds to this morning’s upside move. If these gains cannot hold, then it’s time to move on Ultra Short S&P 500 ProShares (SDS – NYSE) calls. When it’s time to make such a play, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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