Its off to the races for Micron Technology, Inc. (NASDAQ:MU). The semiconductor company is a buy fresh off an impressive fundamental showing with its most recent quarterly report. What’s more, Micron Technology news has been flush with bullish reports on the company’s promise heading into 2018. It’s time for MU stock options traders to take advantage of the situation.
Before we dive into a trade on MU stock, let’s look at a couple potential drivers. First and foremost, Micron laid to waste concerns that the memory market was slowing down. The company reported quarterly earnings of $2.45 per share on revenue of $6.80 billion. Revenue was up 71% year-over-year and bested Wall Street’s target for sales of $6.39 billion. Earnings topped the consensus by 25 cents per share.
Furthermore, operating cash flow surged 220% from the same quarter last year to $3.64 billion. Micron CEO Sanjay Mehrotra reinforced the company’s growing strength in the earnings conference call: “Micron’s strong results were driven by double-digit sequential revenue growth in mobile, server and SSD applications, with expanded gross margins and improved profitability.”
Click to Enlarge Micron stock price action has been equally strong. Year-to-date, MU stock is up more than 100%, with the shares riding support from their 20-day and 50-day moving averages. While MU stock popped sharply higher immediately following earnings, the shares suffered a drawdown yesterday due to profit taking.
MU stock is now perched on support in the $43.50 region, with it’s 20-day and 50-day trendlines hovering just below. I would expect the shares to rebound sharply from this area of support, potentially challenging the $50 region in January.
Turning to sentiment, bullishness abounds. For instance, Thomson/First Call reports that 28 of the 31 analysts following MU stock rate the shares a “buy” or better, while the 12-month consensus price target rests near $58.78 — leaving plenty of room to run before valuation concerns kick in.
Elsewhere, short sellers increased their positions in the most recent reporting period by 6%. This rise was clearly driven by MU stock’s decline throughout early December, but now that Micron has shaken off demand concerns, these shorts may be forced to cover sooner than expected.
Finally, MU stock options traders are quite bullish on the shares. Currently, the January 2018 put/call open interest ratio rests at 0.60, with calls easily outnumbering puts among front-month options.
Overall, January 2018 implieds are pricing in a potential move of nearly 9.5% for MU stock heading into expiration. The resulting upper bound lies at $48.75, while the lower bound rests at $40.
2 Trades for MU Stock
Call Spread: With earnings out of the way, and the brokerage community’s demand concerns now assuaged, MU stock can once again resume its longer-term uptrend. Traders looking to bet on a continued run higher might want to consider a Jan 2018 $46/$46.50 bull call spread.
At last check, this spread was offered at 11 cents, or $11 per pair of contracts. Breakeven lies at $46.11, while a maximum profit of 39 cents, or $39 per pair of contracts — a potential 250% return — is possible if MU stock closes at or above $46.50 when January 2018 options expire.
Put Sell: On the other hand, if you are looking for a less volatile trading strategy, then a January 2018 put sell position should have you covered. With technical support at $43.50, and additional support near $40, a January 2018 $40 put sell has an excellent chance at finishing out of the money.
At last check, this put was bid at 55 cents, or $55 per contract. In this trade, you keep the premium as long as Micron stock closes above $40 when January 2018 options expire. On the downside, if MU trades below $40 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $40 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.