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Options Bulls Lasso Micron Technology Amid Acquisition Buzz

Bullish options traders are betting that MU will lift its head atop $7 come October

by 6/29/2012 10:58 AM
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The shares of Micron Technology, Inc. (NASDAQ:MU - 6.15) leapt higher on Thursday afternoon, after Japanese newspaper The Nikkei said that the memory chip maker has struck a deal to buy its bankrupt rival Elpida Memory for a reported 200 billion yen. It seems that options traders are buying into the rumors, employing calls to bet on a slow-but-sure rise in MU shares over the next several months.

During the course of Thursday's session, MU saw roughly 40,000 calls change hands -- about three times its average daily call volume, and more than triple the number of puts traded. Speculators initiated new positions at the out-of-the-money October 7 call, which saw open interest increase by 12,385 contracts overnight. Eighty-three percent of these calls changed hands at the ask price, pointing to buyer-driven volume. By purchasing these calls to open, traders believe that MU will climb above $7 by October expiration.

The options pits were already loaded with call buyers before Thursday's acquisition news hit the wires. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 4.86 calls for every put on MU. This ratio arrives in the 81st percentile of its annual range, signaling that speculators on these exchanges have bought calls over puts at a faster-than-usual pace over the past couple of weeks.

Elsewhere on the Street, it appears as though short traders have begun to rethink their bearish bets on MU, as short interest decreased 16.9% during the past two reporting periods. In fact, at MU's average pace of trading, it would take just two sessions for all of the remaining pessimistic positions to unwind.

Technically speaking, MU is off about 20% for the past 52 weeks, and a modest 5% in 2012. The merger buzz has MU up about 3.1% in today's trading, but the stock is now running into resistance at the $6.20 level. This region has served as a stubborn technical ceiling since mid-May.


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