For months, Micron Technology, Inc. (NASDAQ:MU) shares lay dormant, mired in a range. But with this week’s return of volatility, MU stock is once again in play. Despite the crash striking the broader market, Micron looks poised for more upside.
On the news front, the company issued a press release Tuesday lifting their guidance for revenue and earnings. Wall Street cheered, and bulls charged driving MU higher by 11.4% before the bell finally halted the stampede.
Heavy volume accompanied the rally, suggesting it wasn’t a retail-trader driven affair, but an institutional-led buying binge that brought all the big boys to the yard.
Click to Enlarge I find the timing of the surge particularly compelling because it reversed Monday’s breakdown in the stock, creating a bear trap. Anyone who shorted MU stock before yesterday’s unexpected news is now squealing in pain and a potential buyer when they finally throw in the towel.
This should add further fuel to Micron in the days and weeks ahead.
The consolidation over the past two months has taken on the form of a symmetrical triangle pattern. Monday’s downdraft breached the lower trendline and yesterday’s surge now has MU on the verge of breaking the upper trendline. A pop above $45 would confirm the breakout and signal the stock is on its way back to its 52-week high near $50.
Bank on Strength in MU Stock
To capitalize on further strength, consider buying an April $44/$49 bull call spread for around $1.80. The vertical spread involves buying the April $44 call and selling the April $49 call option. The premium received from the short call reduces the overall position cost while increasing your probability of profit. By using April options we’re giving MU two months to make the trek up to $49.
The max risk is limited to the initial $1.80 cost and will be forfeited if Micron sits below $44 at expiration. To minimize the loss, I suggest exiting on a break of Monday’s low ($39.01). The max reward is $3.20 and will be captured if MU can rally above $49 by expiration.
As of this writing, Tyler Craig held bullish options positions in XME and EEM. Want more education on how to trade? Check out his trading blog, Tales of a Technician.