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Speculators Sell At-the-Money Puts on Micron Technology

MU's April 8 put garnered the most attention

by 2/14/2012 9:09 AM
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Premium sellers swarmed Micron Technology, Inc. (MU - 7.85) on Monday, a session after company executives made their first comments since the unexpected plane-crash death of Chief Executive Steven Appleton. At the analyst day, newly appointed CEO Mark Durcan -- who'd previously planned to retire in August -- vowed to remain at the helm for as long as he "can foresee and beyond, giving 100% to the company and driving it forward to make it as successful as it can be."

During the course of Monday's session, MU saw roughly 20,000 puts change hands -- more than double its average daily volume. Most active was the near-the-money April 8 put, which saw more than 14,000 contracts traded. The majority of the puts crossed at the bid price, and put open interest at the back-month strike skyrocketed by close to 13,500 contracts overnight, pointing to sell-to-open activity.

By writing the puts to open, the sellers are expecting MU to finish north of $8 when April-dated options expire. In this best-case scenario, the puts will expire worthless, and the sellers can pocket the initial premium received from the sale -- which represents the maximum potential reward on the play.

From a broader sentiment standpoint, the preference for puts is nothing new for MU. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.63 ranks in the 74th percentile of its annual range, implying that near-term speculators are more put-heavy than usual at the moment.

In pre-market trading, the shares of MU are headed 0.4% higher. From a longer-term perspective, the stock has tacked on 24.8% since the start of the year, ushered into the black atop its 10-day and 20-day moving averages.


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