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Option Brief: Micron Technology, Inc. (NASDAQ:MU) is a longtime overachiever, more than tripling in value during the past 52 weeks. In yesterday's options pits, one trader gambled on a continued advance for the semiconductor name by initiating a bull (or long) call spread.
Shortly after the opening bell, a 5,415-lot of March 25 calls traded above the ask price at $0.91 apiece, indicating they were purchased. Seconds later, two blocks totaling 5,415 contracts traded at the March 27 call -- one at the bid price of $0.44 per contract, the other near the bid price for $0.45 each -- suggesting they were sold. Open interest spiked at both strikes overnight, conveying the creation of new out-of-the-money positions.
Based on the long call spread strategy, yesterday's trader has a moderately bullish outlook toward MU. By buying the lower-strike calls (to open), he expects the stock -- currently lingering near $23.36 -- to gain at least 7% between now and March options expiration in order for the purchased call to reach in-the-money territory. By selling the higher-strike calls (to open), he reduced his entry cost, but limited his profit potential to $1.53, which is the difference between the strike prices, less the initial cash outlay.
No matter what happens, the most the speculator has on the line is the initial net debit of $0.465 per spread (premium paid less average premium received). The spread buyer will endure the maximum potential loss if the options expire with MU perched below $25.
In fundamental news, Micron Technology, Inc. (NASDAQ:MU) announced this morning a $500 million offering of senior notes due in 2022. The company intends to use the net proceeds toward extinguishing the costs associated with its outstanding 2014 notes.