It may not seem like it following Friday’s earnings reaction in Micron Technology, Inc. (NASDAQ:MU), but the third time could be the charm for MU stock. Let me explain.
When I last wrote about Micron on May 25, it was noted owning shares meant being able to handle price volatility associated with a bucking bull. And MU stock delivered just that on the heels of its latest corporate confessional with shares sliding by roughly 5% in Friday’s earnings aftermath.
The much more pleasant news to report is confirmation on all fronts that MU stock is in the early phases of a robust bull market cycle within the DRAM and NAND markets.
Looking past Friday’s nearsighted profit-taking reaction, Micron stock delivered in spades with its easy top and bottom-line beats, as well as management offering upward and above-views guidance.
What’s more, with a squiggly line gift on the price chart as of Friday’s close, multiple upward revisions from analysts and one bull lifting its price target from $60 to $75 at Rosenblatt Securities; there’s ample support off and on the price chart to get long MU stock today!
MU Stock Daily Chart
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Micron stock did, in fact, make good on that potential as a breakout was forged just a couple sessions later.
However, a forecasted reassertion of MU’s bullish trend has proved to be more of the “bucking bull” persona, as a second consolidation in the form of a base-on-base pattern has been established.
Looking forward and on the heels of Friday’s price slide in shares, MU stock is now putting together a third test of the prior breakout for support. With the 50-day simple moving average also acting as another layer of technical backing, I’m optimistic, along with Micron’s increased value characteristics off the price chart, the third time will prove to be the charm.
MU Stock Bullish Combo
In reviewing MU stock’s options board, I’ve come up with an unorthodox spread combination to position long deltas with overall less risk, solid profit capture prospects and a generous return based on our outlook.
With shares at $29.86 the combination involves selling the Aug $30/$29 put spread at 45 cents and buying a modified Aug $32/$34/$35 butterfly call spread at 37 cents for a net credit of 8 cents.
So what’s this offer bullish MU stock traders?
First, at expiration if shares are in-between $30-$32, both spreads expire worthless. That would result in the trader receiving the small credit in full. Admittedly, it’s small potatoes, but prior to expiration if MU stock rallies, larger profits within the range could be available due to the combination’s long deltas.
Second, an above-market butterfly stationed around $34 translates into a profit that approaches $2.08 at expiration courtesy of the embedded $32/$34 bull call spread. That’s as good as it gets from a profit standpoint, but that’s also pretty decent, right? The better news and unlike a traditional butterfly, if MU stock trades through the $35 wing, a profit of $1.08 is still guaranteed.
The ability to keep a profit no matter how high MU stock goes during the life of the combo is due to the tighter $34/$35 bear call spread which can only reduce the max profit by $1.
Lastly and on the downside, this modified spread package maintains 92 cents or roughly 3% MU stock risk below $29. That’s directly tied to the $30 / $29 bull put spread minus the initial credit.
Bottom line, if the third time isn’t the charm, the smallish and defined risk for a volatile name could come in handy — and in more than one way depending on how attached to this bucking bull you are.
Investment accounts under Christopher Tyler’s management currently own positions in MU stock and its derivatives. 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.
