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Last night's price-target hike at UBS helped send shares of Micron Technology, Inc. (NASDAQ:MU) soaring to the $28.92 mark today -- their loftiest perch since April 2002. Option players are responding in kind, scooping up calls at a 64% mark-up to the intraday average. Already, the stock has roughly 34,000 calls on the tape, compared to about 14,000 puts. Diving deeper reveals a number of speculators are betting on the semiconductor concern to maintain its positive momentum over the next several weeks, and continue its streak of higher highs.
MU's July 29 call is one of the more active options thus far, with 4,083 contracts exchanged. The majority of these calls have traded on the ask side, and implied volatility (IV) has edged higher -- two indications that new positions are being purchased. Data from the International Securities Exchange (ISE) confirms that at least a portion of the day's activity is of the buy-to-open kind.
Based on the volume-weighted average price (VWAP) of $1.60, traders will see a profit should MU settle north of $30.60 (strike plus VWAP) at the close on Friday, July 18 -- when the options expire. Gains are theoretically unlimited with each additional move above this breakeven mark. Meanwhile, if MU closes south of the strike price at expiration, the most the speculators risk losing is the initial cash outlay. According to the options market, it's a coin toss as to whether this call will finish in the money, per its delta of 0.50.
On the charts, the notching of today's notable milestone only highlights MU's withstanding technical prowess. Year-over-year, in fact, the shares have rallied more than 140% to trade at $28.64. Coupling this positive price action with a short interest-to-float ratio of 10.7%, a portion of today's activity at the out-of-the-money call could be at the hands of short sellers hedging against any additional upside.
Regardless of the motive, these Micron Technology, Inc. (NASDAQ:MU) calls are being scooped up at a relative bargain. Specifically, IV at the July 29 call is deflated compared to the equity's 40-day historical (realized) volatility (40.5% vs. 46.7%), meaning premium is inexpensive at the moment, from a volatility perspective.