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Semiconductor interest Micron Technology, Inc. (NASDAQ:MU) has seen an unusual amount of action in the options pits this morning, with total intraday trading volume nearly four times the norm. So far, the single biggest transaction was at the October 12 call position, where a block of 32,000 option contracts went off at the ask price of $0.34 per contract. With volume outpacing open interest, and implied volatility ticking upward, it appears that these calls are being bought to open.
This investor is hoping that the underlying shares of MU will surpass $12.34 (strike price plus net debit) by the option's October 18 expiration date. (He can also exit the trade at any point before expiration, to cap losses or take early profits.) This represents a gain of nearly 34% from the security's current perch at $9.24. Upside is unlimited on this transaction, since the trader would benefit step-for-step in the event that the equity marches north of the aforementioned breakeven point.
That being said, bullish speculation on Micron Technology has been in short supply of late. According to information from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the company's 10-day put/call option volume ratio stands at 0.53, which ranks in the 93rd percentile of readings taken over the past year. Put more simply, investors have been buying puts to open at an accelerated pace over the past two weeks.
Meanwhile, in spite of the fact that MU has added over 45% year-to-date, a closer look at the charts reveals that the company has faced significant resistance at $10 per share, and hasn't traded above $12 per share since September 2007. Plus, for the first time since last November, the security has been trading below its 40-day moving average, which could offer a second layer of resistance.
Nevertheless, even if a potential Micron Technology, Inc. (NASDAQ:MU) rally is halted south of the strike price, the most the investor has to lose is the initial premium paid.