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Despite missing analysts' per-share earnings expectations, Micron Technology, Inc. (NASDAQ:MU - 10.08) is spiking today, hitting a new annual high as investors cheer stronger-than-anticipated sales. And traders are taking notice: calls are trading at more than three times their normal level, with more than 65,000 contracts changing hands.
Many of these are at strikes that are already in the money, but one of the more popular trades on MU includes the May 11 call, which has seen more than 7,000 contracts cross the tape. Volume exceeds open interest and a good chunk of these were bought at the ask price, indicating the creation of new positions. The calls traded at a volume-weighted average price (VWAP) of $0.30, meaning Micron Technology needs to move above $11.30 (strike price plus VWAP) by the expiration day of May 17 for the buyers to be profitable. Otherwise, all the investors lose is the premium paid.
This call trading was more of the same for MU. In the last 10 days, there have been 144,385 calls bought to open vs. 17,890 puts on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 10-day call/put volume ratio of 8.07 ranks in the 88th percentile of readings taken in the last year, indicating that traders are buying calls to open at a very accelerated rate recently.
And the stock's recent performance is a good indication of why there's such bullish sentiment in the option pits. MU is up 59.3% so far this year, and today hit a new 52-week peak of $10.18. In the most recent quarter, Micron Technology lost 28 cents a share, compared with a 19-cent loss predicted by Wall Street analysts, as it was weighed down by acquisition costs. But the company's revenue was well above expectations, leading to today's surge. In addition, the stock is now trading close to the consensus price target of $10.22 set by analysts -- and any upgrades could create tailwinds for the stock, and the option traders betting on an extended rise. In fact, no fewer than seven brokerage firms have lifted their respective price targets since last night.