Stocks quoted in this article:
Option Brief: A quick bounce off their 140-day moving average in mid-April helped send shares of Micron Technology, Inc. (NASDAQ:MU) to levels not seen since mid-2002. This upward momentum was in full swing this morning, when MU tagged the $27.18 mark -- its loftiest perch since April 2002. Against this backdrop, calls are trading at nearly two times the average intraday pace, and speculators are once again either gambling on or hedging against yet another decade-plus peak.
By the numbers, around 58,000 MU calls are currently on the tape, compared to 18,000 puts. All 10 of the most active strikes expire within the next two months, causing the stock's 30-day at-the-money implied volatility (IV) to rise 2.0% to 39.5%. Meanwhile, almost 50% of the day's call activity has centered on the May 28 strike, where 26,822 contracts -- including two massive sweeps totaling 24,772 -- have traded. With 98% of the contracts going off at the ask price, IV edging higher, and volume outstripping open interest, it appears new bullish positions are being purchased.
By initiating these long calls, traders are anticipating a move north of $28 by next Friday's close, when front-month options expire. More specifically, the volume-weighted average price (VWAP) for the calls is $0.30, making breakeven at expiration $28.30 (strike plus VWAP), or 4.3% above the equity's current perch at $27.14. However, with 11.6% of MU's float sold short, a portion of today's activity at this out-of-the-money strike could be at the hands of short sellers hedging against any additional upside.
Regardless of the motive, risk for today's call buyers is limited to the initial cash outlay. According to Micron Technology, Inc.'s (NASDAQ:MU) Schaeffer's Volatility Index (SVI) of 38% -- which ranks lower than 91% of similar readings taken in the past year -- premium on MU's front-month options is inexpensive, from a historical standpoint.