Options Trader Bets on Monster Micron Move

Micron earnings are expected in mid-December

by Karee Venema

Published on Nov 18, 2019 at 3:03 PM
Updated on Nov 19, 2019 at 3:23 PM

Micron Technology, Inc. (NASDAQ:MU) is slated to report earnings in mid-December, and the chip stock has a history of making big post-earnings moves -- averaging a next-day swing of 7.2% over the last two years. One options trader on Friday wagered on another volatile earnings reaction for Micron, initiating a long straddle in the front-month series.

Looking closer, one speculator bought to open 10,000 December 55 calls and 10,000 December 55 puts for an initial cash outlay of $7.94 million (10,000 spreads * $7.94 premium paid * 100 shares per contract). By doing so, the trader expects MU to surge above $62.94 (strike plus net debit) or sink below $47.06 (strike less net debit) by the close on Friday, Dec. 20, when the options expire. However, if the stock lands right at $55 when the options expire, the spread strategist will forfeit the entire premium paid.

More broadly speaking, options traders have struck a bullish tone toward Micron. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.35 registers in the 75th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

It's certainly an attractive time to purchase premium on MU options. The stock's Schaeffer's Volatility Index (SVI) of 42% arrives in the 19th percentile of its 12-month range, meaning short-term contracts are pricing in relatively low volatility expectations at the moment -- ideal for long straddles, which require buying double premium.

On the charts, Micron shares have been gaining ground since bouncing from familiar support in the $42 region in early October -- home to their pre-bear gap levels from July. More recently, last week's slip was quickly contained by MU's 80-day moving average, and today, the equity is up 0.4% at $47.88, bringing its year-to-date gain to 50.9%.

mu stock daily price chart on nov 18


A Schaeffer's exclusive

TOP STOCK PICKS 2020

Access your FREE insider report before it's too late!


 
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


The Security Stock Targeting Terrorism
Click to continue to advertiser's site.
Earnings, China Deal Signing Guides Stocks to Fresh Highs
Traders were greeted with some M&A buzz, too
Twitter Stock Drops on Analyst Slam
TWTR has been attempting to recover from its fourth-quarter lows
The Security Stock Targeting Terrorism
Click to continue to advertiser's site.