Infinera, Micron Stocks Flashing 'Buy'

Options traders are anticipating gains from shares of Infinera and Micron

Apr 20, 2017 at 10:51 AM
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Each week, Schaeffer's Senior Quantitative Analyst Rocky White runs a study on stocks that could potentially bounce off nearby trendlines. This time around, he identified a pair of tech stocks -- Infinera Corp. (NASDAQ:INFN) and Micron Technology, Inc. (NASDAQ:MU). Below, we'll take a closer look at where the shares are positioned, and how options traders have been betting on INFN and MU.

Why Infinera Stock Could Sting Skeptics

INFN stock is trading just above its 200-day moving average, and based on quantified returns, it could be on the verge of a breakout. Specifically, the shares have tested this trendline four times in the past three years. And after five sessions, the stock has been higher 75% of the time, with an average return of 6.7%. Even more impressive, the typical post-signal gain at 21 trading days is 18.2%.

A repeat performance would have INFN building on its year-to-date gains. So far in 2017, the shares have advanced 13.5%, including today's 1% rise to $9.64. Options traders are certainly expecting extended upside on INFN shares. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 18 times as many calls as puts have been bought to open -- albeit on low absolute volumes.

Some of these calls may have been purchased by Infinera Corp. short sellers as an upside hedge, considering short interest accounts for over 11% of its float. From a contrarian perspective, this could add fuel to the stock's fire, as shorts race to cover underwater positions. What's more, INFN could get a boost as analysts upwardly revise their ratings, with 10 of 14 sporting tepid "hold" opinions.

Micron Options Traders Eyeing a Trendline Bounce

Turning to MU, White's data reveals the recently tested 40-day moving average has proven to be a bullish signal in the past. Following the last five tests, the shares have been higher 80% of the time on both a five- and 21-session time frame -- with average gains of 2.1% and 5.9%, respectively. Already, MU stock has surged 160% year-over-year at $27.69.

This helps explain why options traders at the ISE, CBOE, and PHLX have been arraying themselves so bullishly. In the last 10 weeks, Micron Technology, Inc. has racked up a call/put volume ratio of 4.98 -- just 1 percentage point from a 12-month peak. In other words, MU options traders have expressed a near-extreme preference for calls over puts, hinting at upbeat expectations.

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