I’ve recently had some luck trading the price action in Micron Technology, Inc. (NASDAQ:MU), both bearish and bullish. In late March, I shared a bearish trade that paid quickly. Two weeks prior to that, I shared a bullish MU trade yielding quick profits with zero out-of-pocket risk.
I know what you are thinking: Just what is this guy’s opinion of Micron stock? To that, I say it doesn’t matter what I think.
I sell risk against the extreme opinions of others and let time do the work. My goal is to profit from selling other investors lottery tickets that are designed to expire worthless, thereby giving me my maximum profits.
This is how it works: If someone believes MU stock will hit $17 this year, and I disagree, I will sell them that lottery ticket. I collect the money now and I keep the money if MU stock stays above my sold strike.
Today, and with profits in hand, I want to repeat that bullish performance of my previous MU trade. This is not the same as saying that I believe MU is likely to rally … I only need it not to collapse for me to profit.
Click to Enlarge Technically, MU has had a dip with more downside still a possibility. So I will place my risk much lower than current levels, thereby creating a healthy room for error.
The Bet: Sell the MU 2018 Jan $17 naked put. This is a bullish trade for which I collect 75 cents per contract. In theory, this trade has a 90% chance of success. If MU stock stays above $17 this year win and the buyer of the put loses. If MU falls below $16.25, I will accrue losses.
It’s difficult to guess where a stock is going, but it’s much easier to know where it’s not likely to go. That’s why I don’t worry much about the perfect entry point, so long as I find value pockets against which I can sell risk for income.
Learn options as easy as 1-2-3 here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
