I’ve said before, but I’ll say it again: In a market long overdue for a rest, Micron Technology, Inc. (NASDAQ:MU) looks great both off and on the MU stock chart. For bullish investors, a limited risk and modified butterfly is a smart way to position.
They say a rising market tide lifts all stocks. However, it’s never that easy. Even if one were to take the well-worn adage at face value, it fails to address the ebbs and flows that occur regularly beneath the surface of “Nasdaq Hits New Highs!” headlines. Case in point, MU stock.
Within the benevolent tide that’s taken the Nasdaq up an astonishing 10%, shares of Micron are up a slightly less forceful 8%.
At the same time, MU has failed to show anything resembling the broader market’s price tenacity. But is Micron’s lack of steady-eddy resilience a cause for concern or merely a reflection of the market’s subsurface ebbs and flows?
Upon examination of the MU stock chart, this strategist believes it’s the more benign price action of the latter and the type that will lead to an upside resolution and period of outperformance.
Why, you might ask? The short answer is not much has changed off the price chart since writing about Micron on Jan. 30. As such, the current MU stock action should prove an opportunity to get long “a tiger that needs to be ridden” at attractive levels, as Micron’s business cycle begins to fire on all cylinders.
MU Stock Daily Chart
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The good news in MU’s defiant price behavior is that, considering what’s been said, the chart reflects a low-risk spot entry into the existing uptrend.
Backing our view is a fresh pivot low in MU stock that has held both the 50-day simple moving average and 50% retracement level, as well as a stochastics crossover in oversold territory.
But in case we’re wrong, a limited-risk options spread in lieu of stock might be worth considering.
MU Stock Modified Bullish Butterfly
After reviewing MU stock’s options and shares trading at $23.80, a modified April $24/$26/$27 call butterfly is a spread that looks attractive to this strategist.
Priced for a debit of 50 cents, the bullishly placed butterfly has the potential to return 150%, or $1.50, if MU rallies into the sold $26 call strike at expiration. While such precision is highly unlikely, the open profit profile, rather than a profit range above $24.50, is a nice feature.
Unlike regular butterflies with embedded verticals of the same width, this trader is securing a worst case profit scenario of 50 cents if MU is above $25. That’s due to the $1 wide $26/$27 bear call spread whose risk is half the return of the $2 wide $24/$26 bull call spread.
This type variation does cost more than a normal butterfly, but it doesn’t have the limitations of losing money if MU stock were to rally above the spread’s upper wing. Further, with Micron reporting in late March, not needing to worry about a top in Micron shares is worth the expense in our estimation.
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.
