Micron Technology, Inc. (MU) Option Bulls Go Big

Micron Technology, Inc. (NASDAQ:MU) is getting a lift from its sector peer, and options traders are responding in kind

Apr 26, 2016 at 2:27 PM
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It's a good day to be a semiconductor stock. Micron Technology, Inc. (NASDAQ:MU), for example, has surged 9.7% to $11.58 -- and is the biggest percentage gainer on the S&P 500 Index (SPX) -- after its sector peer SK Hynix offered up encouraging guidance on growing DRAM demand. In MU's options pits, meanwhile, calls are crossing at four times the average intraday rate -- and are outpacing puts by more than a 4-to-1 ratio.

By the numbers, 88,107 calls have changed hands -- in the 94th annual percentile -- compared to 19,398 puts. MU's May and June 11 calls have seen the most action, with a collective 24,237 contracts on the tape, and it looks as if the action is a result of two big block traders purchasing new positions.

According to Trade-Alert, one block of 9,815 June 11 calls was bought to open for $814,645 (number of contracts * $0.83 premium paid * 100 shares per contract). Separately, it appears as if a 9,000-contract lot of May 11 calls were purchased for $0.65 apiece, resulting in an initial cash outlay of $585,000. Profit will accumulate with each step north of $11 MU takes through the respective options expiration dates, while losses are capped at 100% of the premium paid.

Widening the scope, it's been put players who have been active in MU's options pits in recent months. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.63 sits higher than all other comparable readings taken in the past year.

Echoing this is MU's Schaeffer's put/call open interest ratio (SOIR) of 0.88, which rests just 7 percentage points from a 52-week peak. In other words, short-term speculators have rarely been as put-heavy toward the stock as they are now.

Now appears to be an opportune time to strike on MU's short-term options. Not only does the security's Schaeffer's Volatility Index (SVI) of 47% rank in the 26th annual percentile, but its 30-day at-the-money implied volatility of 46.4% rests lower than 69% of all similar readings taken during the past 12 months. Simply stated, MU's near-term options are pricing in relatively low volatility expectations at the moment.

Technically, MU has been battling back since hitting a two-year low of $9.31 on Jan. 20, thanks in part to help from the brokerage bunch. And while the stock is poised to notch its first close north of its 80-day moving average since Dec. 1, it's still struggling near $11.60 -- an area that's contained MU's advances for most of the year.

MU daily chart April 26

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