Wolfspeed Stock Plummets 60% on Bankruptcy Fears

Wolfspeed, a prominent manufacturer of semiconductor components, is reportedly preparing to file for bankruptcy protection within the next few weeks. This news, which broke after regular trading hours on Tuesday, has sparked significant activity in the options market, with traders increasing their bearish bets on the struggling company.

Prior to the announcement, there was a surge in trading volume for put options on Wolfspeed. Specifically, put options with a strike price of $3 and an expiration date in July saw a trading volume of nearly 70,000 contracts, equivalent to 7 million shares. A substantial portion of these trades occurred in the final half-hour of the trading day, with transactions executed at or near the quoted price. The implied volatility for these options spiked, indicating that investors were predominantly buying these contracts.

The total volume of put option trades reached a record high of over 363,000 contracts, with 10 of the most actively traded contracts being put options. Given that Wolfspeed's stock price has declined by 28% over the past month, some investors may be taking additional measures to protect against further declines.

Wolfspeed's stock price closed down 10.32% on Tuesday, at $3.13 per share. Following the bankruptcy news, the stock plummeted to $1.05 during after-hours trading before rebounding to $1.24, representing a drop of 60%. If Wolfspeed's stock price remains low on Wednesday, buyers of put options could see substantial profits from the increase in option value. For instance, a put option with a strike price of $2 and an expiration date of May 30, which was trading at 8 cents, is now worth at least 60 cents.

This surge in put option activity suggests that investors are anticipating further declines in Wolfspeed's stock price. The company's financial struggles and the potential for bankruptcy have raised concerns among investors, leading to increased hedging activity. The significant drop in stock price following the bankruptcy news further underscores the market's pessimistic outlook on the company's future prospects.

As Wolfspeed navigates through this challenging period, the company's management will need to address its financial issues and develop a strategy to regain investor confidence. The outcome of these efforts will be crucial in determining the company's long-term viability and its ability to recover from this setback. Investors will be closely monitoring the situation, and any developments could have a significant impact on the company's stock price and overall market sentiment.