Revenue Warning, Slow Demand Hurting Another Chip Stock

Options volume is today running at triple the intraday average

Digital Content Manager
Aug 9, 2022 at 10:41 AM
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Micron Technology, Inc. (NASDAQ:MU) was last seen down 4.6% at $58.60, after the chipmaker joined its counterpart NVIDIA (NVDA) in lowering its revenue forecast. The company said waning demand for chips used in personal computers and smartphones could weigh on its fiscal fourth quarter, and warned it may see negative free cash flow in the following quarter for the first time since 2020. However, it also announced plans to invest $40 billion in U.S. memory manufacturing through the end of the decade.

Susquehanna has already chimed in with a bear note, cutting MU's price target to $68 from $82. Analysts are still optimistic towards the chip stock, though, with 18 of the 23 covering the equity calling it a "buy" or better, while only five carry a tepid "hold" or worse.

Options traders have been quick to jump in on the action, too. So far today, 31,000 puts and 18,000 calls have crossed the tape, or triple what's usually seen at this point. Most popular is the 8/12 59-strike put, followed by the 60-strike put in that same series, with new positions being opened at both.

Bearish bets have been popular of late. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day put/call open interest ratio of 1.06, which sits higher than all readings from the past year. This means puts have been getting picked up at a much faster-than-usual clip.

These options traders are in luck, as now seems like an ideal time to bet on MU's next moves. This is per the stock's Schaeffer's Volatility Scorecard (SVS) of 90 out of 100, which means the security has usually outperformed volatility expectations -- a good thing for buyers. 

A closer look at Micron Technology stock reveals it has been underperforming the broader market so far this year, with shares down 36.9% in 2022. The 80-day moving average rejected last week's rally off a July 1, nearly two year-low of $51.40, but has been pressuring the equity since early March.

 

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