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 among traders who have increased their bearish bets on the struggling company. Prior to the announcement, there was a notable surge in the trading volume of put options for Wolfspeed, with nearly 70,000 contracts for July expiration with a strike price of 3 dollars being traded. A substantial portion of these transactions occurred in the final half-hour of trading, indicating a rush to capitalize on the anticipated decline in the company's stock price.

The heightened trading activity in put options reflects the growing pessimism among investors regarding Wolfspeed's financial health. 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. This surge in put option activity comes as Wolfspeed's stock price has declined by 28% over the past month, prompting some investors to take protective measures against further potential drops.

Wolfspeed's stock price closed Tuesday's trading session at 3.13 dollars, down 10.32% from the previous close. Following the bankruptcy news, the stock plummeted to 1.05 dollars during after-hours trading before recovering slightly to 1.24 dollars, representing a 60% decline from its closing price. If Wolfspeed's stock price remains low on Wednesday, investors who purchased put options could see substantial gains. For instance, a put option with a May 30 expiration date and a strike price of 2 dollars, which was initially traded at 8 cents, is now valued at least 60 cents, highlighting the potential profits for those who bet on the company's decline.

The increased trading activity in put options suggests that investors are bracing for further turbulence in Wolfspeed's stock price. The company's financial struggles and the impending bankruptcy filing have raised concerns about its ability to continue operations and meet its obligations. As a result, traders are positioning themselves to profit from the anticipated decline in the company's stock price, while also seeking to hedge against potential losses in their portfolios. The situation underscores the challenges faced by semiconductor manufacturers in the current market environment, as well as the importance of risk management strategies for investors.