Trade of the Day: Wolfspeed (WOLF) Stock Could Get Squeezed Higher


  • Shares of semiconductor specialist Wolfspeed (WOLF) popped higher on Tuesday.
  • A combo of market psychology and the panic tied to a short squeeze could boost WOLF stock.
  • The company could be a long-term investment, but the short-term approach is compelling.
WOLF stock - Trade of the Day: Wolfspeed (WOLF) Stock Could Get Squeezed Higher

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Swing traders looking to grab a quick profit should turn their eyes toward semiconductor specialist Wolfspeed (NYSE:WOLF). Offering silicon carbide and other critical materials necessary to produce components for the radio frequency and power industries, WOLF stock essentially represents a stagehand investment: It’s not the headline act, but it keeps the show running.

However, Wolfspeed is financially volatile. For example, in the second quarter of 2023, the company posted a loss per share of 42 cents. That was well off the anticipated loss of 20 cents per share. The average quarterly surprise in fiscal 2023 came out to nearly 17% against expectations.

Over the long run, analysts believe in the forward potential of WOLF stock. Wolfspeed carries a moderate buy consensus among Wall Street experts. The average price target stands at $43.11, implying more than 49% upside against Tuesday’s close. Bolstering enthusiasm is fiscal 2025’s revenue target of $1.18 billion.

Nevertheless, the same experts are only calling for sales of $833.21 million for the current fiscal year. That’s off almost 10% from last year’s print of $921.9 million. In other words, it has long-term investment potential. Still, traders might find the short-term play more enticing.

A Brewing Short Squeeze Could Attract Eyeballs

Looking at the trading potential of WOLF stock, two elements stand out. First, we must talk about the price. On Tuesday, shares closed at $28.90. Given the market’s natural preference for whole numbers, hitting $29 practically represents a foregone conclusion.

And major round numbers are even more compelling. In this case, WOLF stock will likely make a move toward $30.

Moreover, looking at Barchart’s Trader’s Cheat Sheet, a good chunk of resistance levels start above $30. There is one important resistance line below $30 at $29.54, which Barchart terms a “Pivot Point 1st Resistance Point.”

Chart by Josh Enomoto,

I expect the bulls to blast through this barrier due to another potentially positive catalyst: the short squeeze. According to data from Yahoo Finance, WOLF stock features an extremely high short interest of 22.29% of the float. Also, the short ratio comes in at 4.77 days to cover, which is modestly elevated.

Short traders aim to profit from falling prices. If the opposite happens, they must cover their position before it gets blown up. However, the very act of covering involves buying the security in question, which is very bullish for WOLF stock.

Trade of the Day: Buy WOLF Stock Call Options

The latest data suggests that if WOLF stock doesn’t open at $29, it won’t take too long to get there. If so, that leaves the security about 3.45% of room to hit $30. With that in mind, we’re going to look at $30 near-expiry call options.

Specifically, the 17 May 2024 $30 call arguably makes the most sense. First, with 37 days till expiration, it gives you enough time for WOLF stock to move up 3.45% to hit the strike price, if not breach it. If the stars align, you should be able to collect on a combination of time and intrinsic value.

Second, the bid-ask spread as represented by the midpoint price ($3.50 minus $3.30 divided by $3.40) came out to 5.9%. That’s high on absolute terms but is quite low compared to other WOLF stock call options. Assuming a similar spread on Wednesday, this should help aid in netting a bigger profit.

Finally, this is a quick in, quick out trade. If you get the pop, bag the gain and move onto the next trading opportunity.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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