Stocks quoted in this article:
Option Brief: Micron Technology, Inc. (NASDAQ:MU) has been on a tear over the past 52 weeks, with the shares up nearly 178% to trade at $26.17. This positive price action has been in full swing this week, with MU notching a series of higher highs. In today's session, specifically, the stock tagged the $26.46 mark -- its loftiest perch since May 2002. Unlike yesterday's option activity -- which saw a put imbalance despite the stock's strength (40,000 puts were initiated, versus 25,000 calls) -- calls have the edge over puts by a more than 2-to-1 margin today. Diving deeper reveals a number of speculators either betting on another bold move to the upside -- or hedging against one.
The most active strike of the session is MU's July 31 call. The majority of the 7,779 contracts traded here have done so at the ask price, implied volatility has ticked higher, and volume outstrips open interest, collectively inferring the purchase of new positions.
Considering it's been roughly 12 years since MU has traded north of $31, delta for the call is docked at 0.22, implying a roughly 22% chance the position will be in the money at the close on Friday, July 18, which is when the options expire. Risk for today's call buyers is limited to the initial premium paid. According to Trade-Alert, the volume-weighted average price for the calls is $0.60.
This bullish positioning among option traders isn't surprising, considering MU's withstanding technical strength. However, although short interest dropped 5.7% in the latest reporting period, nearly 12% of the stock's float is still sold short. In light of this, a portion of the activity at the deep out-of-the-money July 31 call could be a result of shorts hedging against any additional upside. Meanwhile, from a contrarian perspective, a continued unwinding of these bearish bets in the face of the stock's upward momentum could help fuel Micron Technology, Inc.'s (NASDAQ:MU) fire.