Option Bear Bets $1 Million on Micron Technology, Inc. (MU)

Micron Technology, Inc. (NASDAQ:MU) will report earnings next Wednesday evening

Mar 24, 2016 at 1:52 PM
facebook X logo linkedin

Micron Technology, Inc. (NASDAQ:MU) has retreated 1.6% to trade at $10.48, following a price-target cut to $10.50 at Wedbush. In a note, the brokerage firm said it expects an earnings miss from the chipmaker next Wednesday evening, citing weak DRAM prices. From the looks of it, at least one options trader is banking on a lackluster earnings reaction -- and continued downside for the tech stock.

At last check, MU puts are changing hands at five times the expected intraday rate. Accounting for nearly half of the puts traded is a block of 24,122 contracts at the July 8 strike. According to Trade-Alert, one trader bought to open these out-of-the-money puts for $0.42 apiece, resulting in a total net debit of just over $1 million (premium paid * number of contracts * 100 shares per contract). Her goal is for MU to settle south of $8 -- and in three-year-low territory -- by July expiration, or risk losing the entirety of the initial premium paid.

This represents a break from the longer-term bullish trend in the options pits. Over the past 10 weeks, traders have bought to open 2.69 calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), and the corresponding call/put volume ratio ranks just 10 percentage points from an annual high.

Minus a few exceptions, brokerage firms are also largely upbeat toward MU. Roughly 62% of covering analysts rate the stock a "buy" or better. Plus, the average 12-month price target of $15.57 stands at a nearly 49% premium to current levels.

However, history seems to be on the side of the bears. Micron Technology, Inc. (NASDAQ:MU) has been drifting lower since exploring the $36 area in late 2014, and has lost one-quarter of its value in 2016 alone. Should next week's earnings report be poorly received, a capitulation among the bullish holdouts could send the stock sharply lower.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!