Micron Technology, Inc.: Pop Your Collar in a Bottomed-Out MU Stock

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Bull market anyone? You certainly wouldn’t know it if you’ve owned Micron Technology, Inc. (MU) the last couple years, but could this be on the brink of change? This strategist thinks so.

MU Stock: Pop Your Collar in a Bottomed-Out Micron

There hasn’t been a lot to like about Micron during the market’s relief rally of the past few weeks, let alone since MU’s highs near $36.60 set back in early December 2014.

On the other hand, MU’s continued pressure and refusal to participate even during the best of times, have not only left Micron behind, they’ve set it up as a solid value play.

Fundamentally, MU sports below market trailing and forward price-earnings multiples of 5.8 and 7.3. Micron also maintains positive free cash flow and trades below its book value of $11.89, which is an anomaly in the world of large-cap tech.

Having said that, it’s apparently far from a rainbows and puppy dog’s situation in MU — well, maybe. The most recent analyst call on MU from Nomura Securities warned of “the perfect storm” in DRAM market pricing due to a supply war amongst producers amid weak demand.

But what if the analysts are wrong? It’s not like that’s uncommon. What’s more, traders are far from emphatic in seeing Micron stock as a short at current levels.

Fairly low short interest of 5.50% after MU’s near 69% decline from its December 2014 high appears to support the position that it’s not a favored short at this juncture — and might even present a buying opportunity.

Micron Stock Monthly Chart

031316-mu-stock-chart
Click to Enlarge
Source: Charts by TradingView

Micron moved briefly higher following our analysis, but ultimately never broke above neckline resistance. And it’s been all downhill ever since.

The good news is the additional price slide of about 30% from $16 (if trader’s still like the fundamental story) has added a margin of safety on a technical basis.

Over the past several weeks MU stock formed an inside monthly doji candle in February — and which earlier this month received bullish upside confirmation when Micron shares traded above $11.75.

The potential low is supported by a deep 78% retracement level dating back to Micron’s 2008 low, as well as a 162% price extension from a two-step or mirror move pattern (AB and CD), which further backs Micron as a value proposition.

Micron Stock Collar Strategy

Unlike the broader market, option prices are fairly high in MU, so the use of a spread which has limited risk and takes advantage of rich premiums by selling contracts as well, makes sense.

One such strategy for MU aimed at longer, intermediate-term investments is the collar.

A collar buys stock, hedges downside risk with a protective long put and finances the cost with the sale of an above-market, out-of-the-money call. Given our bigger picture view, MU is a good collar candidate.

Checking the MU board with shares at $11.16, the July $9 put/$14 call collar is priced for $11.25.

Bottom-line, for an additional 9 cents over MU stock, the collar trader ensures position risk is limited to $2.25 or effectively, a guaranteed stop loss at $9 in MU.

On the upside, potential gains are initially capped at 24% or $14 in MU for the next four months. However, intermediate-term bulls that do find themselves in that sort of pleasant and profitable quandary, can always adjust the call and ride the emerging trend higher.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/mu-stock-micron-options-trading/.

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