China Trade Tensions Crush Micron Stock Options Bulls

Chip stocks are taking a hit amid the latest trade headlines

Jun 25, 2018 at 12:21 PM
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Chip stocks are selling off today on renewed U.S.-China trade tension. Micron Technology, Inc. (NASDAQ:MU) is one name that's plummeting alongside its sector peers -- likely putting recent options traders on edge.

In fact, Micron popped up on Schaeffer's Senior Quantitative Analyst Rocky White's list of 20 stocks that have attracted the highest options volume during the past 10 trading days. Call traders have been especially active in MU's options pits in the past two weeks, with call volume more than doubling put volume. (Names highlighted in yellow are new to the list.)

most active stock options on june 25

Looking closer, the July 60 call saw the biggest increase in open interest over this two-week time frame, with nearly 62,500 contracts added. Data from the major options exchanges shows significant buy-to-open activity here, indicating options traders are expecting MU stock to settle above $60 at the close on Friday, July 20 -- when the front-month options expire.

This optimism is seen elsewhere on Wall Street, too. While 19 of 25 covering analysts maintain a "buy" or better rating on MU stock, the average 12-month price target of $80.14 represents a brow-raising 49% premium to current trading levels.

Meanwhile, short interest fell nearly 8% in the most recent reporting period to 60.32 million shares. These bearish bets account for just 5.5% of Micron's available float, and wouldn't even take one session to cover, at the stock's average pace of trading.

On the charts, though, Micron has started to show signs of weakness. Since hitting a 17-year high of $64.66 on May 20, the security has give back nearly 18% -- including today's 6.9% plunge to trade at $53.20. What's more, the security has breached its 40-day and 80-day moving averages, and is at risk of closing below both trendlines for the first time since May 8. Should the shares continue falling, a shift in sentiment both in and out of the options pits could exacerbate MU's woes.

mu stock price chart on june 25

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