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The shares of Micron Technology, Inc. (NASDAQ:MU) tagged a near two-year peak of $10.75 on Thursday, ending just south of this benchmark at $10.71. From a longer-term standpoint, the stock is up nearly 69% in 2013, and option traders think the rally has legs, as evidenced by the growing affinity for long calls. In fact, MU saw roughly 74,000 call options change hands yesterday -- about three times the norm, and close to five times the number of puts exchanged.
Most of the action transpired at the June 11 call, which saw almost 15,000 contracts cross at a volume-weighted average price (VWAP) of $0.50. More than three-quarters of the calls traded on the ask side, and call open interest skyrocketed by close to 10,000 contracts overnight, pointing to newly bought bullish bets.
By purchasing the calls to open, the buyers expect Micron Technology to topple $11.50 (strike plus VWAP) within the next several weeks -- in territory not charted since April 2011. From current levels, it would take a rally of roughly 7.4% in order for MU to hit breakeven. However, should the security remain south of the strike through options expiration on June 21, the most the buyers can lose is the initial premium paid for the calls.
Earlier this week, option bulls placed similar bets, but allowed more time for their predictions to pan out, purchasing January 2014 calls. Nevertheless, this week's appetite for long calls marks a shift in sentiment for Micron, as my colleague Karee Venema pointed out. For instance, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.78 stands higher than 69% of all other readings of the past year, suggesting near-term speculators are more put-biased than usual right now.
Most popular in the front-month series are the out-of-the-money May 7 and 8 strikes, which harbor roughly 22,700 and 19,100 puts outstanding, respectively. In the near term, this abundance of bearish bets could translate into options-related support for MU, which sports a Relative Strength Index (RSI) of 71 -- in overbought territory, suggesting a technical breather could be in the cards.
In pre-market trading, MU is down 1% after a downgrade to "market perform" from "outperform" at JMP Securities.