Micron Earnings: 2 Bullish Trades for MU Stock

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Between a partnership with Intel Corporation (NASDAQ:INTC), broad weakness in the semiconductor sector, and a looming earnings report, Micron Technology Inc. (NASDAQ:MU) has attracted quite a bit of attention this past week.

Micron Earnings: 2 Bullish Trades for MU StockAccording to activity in the options pits, investor sentiment heading into tomorrow’s quarterly report, at least, appears to be positive. With MU stock down nearly 14% since the company’s last quarterly report, this is good news for investors.

Micron Earnings Preview

Digging into the numbers, Wall Street expected Micron earnings to fall roughly 16% year-over-year to 73 cents per share. Revenue, meanwhile, is seen posting anemic growth of just 1% to $4.15 billion.

Given the poor price action in Micron stock, it should be safe to assume that weak earnings are already priced into the shares.

That said, guidance might be much more of a factor for MU stock than the most recent quarter’s results. This is especially true given the ambitious joint venture with Intel in which the duo are aiming to produce “gum stick-sized SSDs with more than 3.5 terabytes of storage” and 10-terabyte laptop solid-state hard drives (SSD), all with lower costs and higher drive performance.

On the sentiment front, Wall Street is quite bullish when it comes to MU stock’s prospects. In fact, the second-quarter whisper number arrives at 77 cents per share, 5 cents higher than the consensus. Additionally, 27 of the 34 analysts following MU stock rate it a “buy” or better, according to data from Thomson/First Call. And if that wasn’t enough, the 12-month consensus price target of $40 represents a hefty premium of 48% to MU’s current perch near $27.

Options traders are also leaning bullish on MU stock. Currently, the April/May put/call open interest ratio for MU rests at 0.61, with calls easily outnumbering puts among options set to expire within the next two months. This ratio dips even further to 0.59 when we zero in on just April options.

4-1-2015 MU
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Overall, weekly April 2 series implieds are pricing in a potential post-earnings move of about 7% for MU stock. This places the upper bound at $28.87 and the lower bound at $25.13. A post-earnings rally could enjoy additional technical buying support, as breaking above $28 would put MU above its 10- and 20-day moving averages, potentially sending MU toward a showdown with psychological resistance at $30.

On the downside, support at $25 should contain any short-term pullbacks created by earnings-related headwinds.

With that as a backdrop, let’s look at a couple potential trades:

2 Trades for MU Stock

  • Call Spreads: With MU near oversold conditions, and given the potential for solid guidance, there is a lot of upside potential for the stock heading into tomorrow’s report. As such, traders looking to side with the bulls might want to consider an April $27/$30 bull call spread. At last check, the April $27/$30 bull call spread was offered at 80 cents, or $80 per pair of contracts. Breakeven lies at $27.80, while a maximum profit of $2.20, or $220 per pair of contracts, is possible if MU stock closes at or above $30 when April options expire.
  • Selling Puts: On the other hand, there are headwinds within the semiconductor sector that could limit MU stock’s advance. Additionally, high expectations could also impact the stock’s price action, even if the report is in-line. As such, a weekly April 2 series $24.50 put sell may be a way to capitalize on support in the stock’s short-term technical backdrop. At last check, the weekly April 2 series 24.50 put was bid at 16 cents, or $16 per contract. It is important to note that this option will expire at the close of trading Thursday due to the holiday-shortened trading week. At expiration, you will keep the initial premium of $16 per contract if MU stock closes above $24.50 when weekly April 2 series options expire. However, if MU trades below $24.50 prior to expiration, you may be assigned 100 shares for each put sold at a cost of $24.50 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/2-bullish-trades-mu-stock-micron-technology-earnings/.

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