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Another Big Block Trader Buys Micron Technology, Inc. (MU) LEAPS

Calls are again MU's option of choice, as optimism reaches fever pitch

by 7/22/2013 1:33 PM
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Micron Technology, Inc. (NASDAQ:MU) has been a favorite among the call-buying crowd lately. The equity sports a 10-day call/put volume ratio of 13.40, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX); this means calls have been bought to open over puts by a margin in excess of 13-to-1 through the past two weeks. The ratio has been higher just 2% of the time in the previous 52 weeks, signifying an unusually high preference for bullish bets over their bearish counterparts.

That sentiment is no less true today, where call volume is three times higher than put volume, and another large block trader appears to be betting on long-term upside for the semiconductor concern. Just minutes after the opening bell, a speculator traded a block of 10,000 January 2015 15-strike calls near the ask price, at $2.59. Implied volatility inched higher on the transaction, indicating the trader likely entered a long position.

In order for the investor to make money on the exchange, he needs the shares of MU -- currently trading at $13.81 -- to move to $17.59 (strike price plus premium paid) by January 2015, when the LEAPS expire. If the advance doesn't materialize by options expiration, the most the bullish individual can lose is the initial net debit; if it does, however, the potential gains are limited only by the performance of the underlying, which is potentially infinite.

As alluded to earlier, sentiment toward Micron Technology among traders is exceedingly positive. That is especially true among the short-term options crowd, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.26, which represents an annual nadir. In laymen's terms, relative to the past year, open interest on options expiring in the next three months has never been as call-skewed as it is currently.

The optimism makes sense in light of Micron Technology, Inc.'s (NASDAQ:MU) technical tenacity. On a relative-strength basis, the shares have outperformed the broader S&P 500 Index (SPX) by 35 percentage points over the last 60 sessions. If that's not enough, year-to-date, the stock's value has more than doubled.


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