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Micron Technology, Inc. (NASDAQ:MU) has seen a surge of call activity at its January 2014 19 strike today, where roughly 20,000 contracts, including a block of 12,000, have changed hands for a volume-weighted average price (VWAP) of $0.55. Of these contracts, 89% went off at the ask price, implied volatility has ticked higher, and volume exceeds current open interest levels, collectively pointing to the initiation of long call positions.
Since the start of 2013, MU has tacked on a jaw-dropping 122%. Not to mention, its 50-day moving average has acted as support within this time frame, successfully containing the stock during its most recent pullback. Even more, MU has outperformed the broader S&P 500 Index (SPX) by 47 percentage points during the past three months, and just yesterday, it reached a new six-year high of $14.60.
Therefore, it's no wonder today's call buyers anticipate MU will continue its journey to new heights. Specifically, they expect the stock to catapult 37.5% from its current perch of $14.22, to finish north of the breakeven price of $19.55 (strike price plus the VWAP) by the close on Jan. 17, 2014, when the option expires. As indicated by Trade-Alert, this call activity -- particularly the large block that traded -- could also be part of a bigger stock-replacement strategy, with the investor looking to profit on a higher move in the stock, without a large cash outlay. If MU fails to hit this mark, untouched since July 2002, the call buyers will only risk losing the initial premium paid per contract.
In the options pits overall, MU speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 426 calls for every 100 puts throughout the last two weeks, resulting in a 10-day call/put volume ratio of 4.26. However, outside of the options pits, MU's short interest has grown by 11.9% during the latest reporting period, and now accounts for 8.4% of the stock's available float, demonstrating that pessimism among stock traders has increased significantly. Therefore, another theory is that short sellers are buying to open calls to hedge their bearish bets.