Option Traders Pay Up to Play Micron Technology, Inc. (MU) M&A Buzz

After hitting an annual low earlier this week, Micron Technology, Inc. (NASDAQ:MU) is higher today amid buyout buzz

by Karee Venema

Published on Aug 28, 2015 at 11:01 AM
Updated on Jun 24, 2020 at 10:16 AM

Micron Technology, Inc. (NASDAQ:MU) is getting a much-needed boost from reports the chairman of China's Tsinghua Unigroup has traveled stateside to push for a takeover. The company informally offered up a multi-billion-dollar bid in July, that was promptly dismissed by MU. Amid today's news, the stock -- which hit a two-year low of $13.50 on Monday -- has jumped 1.9% to $15.97, paring its year-to-date deficit to 54.4%.

Options traders are busy placing their bets, with calls and puts trading at twice the average intraday pace. Drilling down, it appears call traders could be purchasing new positions at MU's September 20 strike, betting on the stock to break out above the round-number $20 mark by expiration at the close on Friday, Sept. 18. Perhaps the bulls are expecting another bid north of the round number by Tsinghua Unigroup; last month, rumor had it the firm would pay $21 per share for MU.

Meanwhile, bears are buying to open the September 16 put -- most active on the day. These puts will be in the money if MU falls back beneath $16 by options expiration.

Expanding the sentiment scope reveals speculators have shown a growing appetite for long calls in recent weeks. Over the past two weeks, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio has jumped to 2.67 from 1.68. What's more, the current ratio ranks in the 59th annual percentile, meaning calls have been bought to open over puts at a slightly accelerated clip.

However, this uptick in call buying has coincided with a rise in short interest -- and MU's decline to 52-week lows. Specifically, short interest rose 3.6% in the latest reporting period, and now accounts for a healthy 6% of the stock's available float. As such, it's entirely possible some of the recent call activity is a result of shorts hedging against any unexpected upside.

Regardless, those purchasing Micron Technology, Inc.'s (NASDAQ:MU) near-term options are willing to pay a pretty penny. The security's Schaeffer's Volatility Index (SVI) of 83% sits in the top percentile of its annual range. In other words, the equity's front-month options are pricing in the highest volatility expectations of the past year.

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