Bullish Micron Options at a Discount Ahead of Earnings

MU calls are pricing in lower volatility expectations than puts

Dec 8, 2017 at 9:22 AM
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Shares of Micron Technology, Inc. (NASDAQ:MU) are up 2.2% in electronic trading, after Susquehanna raised its price target on the chip stock to $60 from $54 -- representing expected upside of 39% to last night's close at $43.20, and sitting in territory not charted since September 2000. The brokerage firm also raised its fiscal 2018 profit estimate ahead of the company's fiscal first-quarter earnings report, due after the close on Tuesday, Dec. 19, saying Micron earnings per share could potentially surge to double digits by 2020.

This upbeat outlook echoes the majority of analysts covering Micron stock, with 18 out of 20 maintaining a "buy" or better rating, and not a single "sell" on the books. Plus, the average 12-month price target of $53.86 stands at a nearly 25% premium to the security's current perch.

And this optimism shouldn't be too surprising, either, considering Micron Technology shares have nearly doubled in value year-to-date, and hit a 17-year high of $49.89 as recently as Nov. 22. Since then, MU pulled back amid a broader retreat in tech stocks, but found a foothold atop the round $40 mark -- a region that served as a floor for the shares in the second half of October.

Those looking to bet on a bigger bounce for Micron stock may want to consider buying call options. The equity's 30-day implied volatility skew of 7.4% ranks in the 95th annual percentile, meaning calls are pricing in lower volatility expectations than their put counterparts.

Plus, MU has consistently rewarded premium buyers over the past 12 months, per the security's Schaeffer's Volatility Scorecard (SVS) of 83. This suggests the stock has tended to make outsized moves, relative to what the options market has priced in.


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